# Calculating tax for FTC



## CA5243 (7 mo ago)

Hi all

I have some foreign wage income to report from last year that I’ve not had to pay local tax on yet as the filing deadline for that here isn’t until January. This is in addition to some wages that I HAVE paid tax on. So I’m adding a few incomes together.

I’m filing using Foreign Tax Credit and have to account for the unpaid tax somehow. Could I just estimate the lowest % of tax that I think I’ll have to pay and add that with the rest of the taxes from my (already taxed) wage?

I’ve run it through my software a few times and my credits don’t change whether I report the tax at 15% (lowest possible) or 20% (highest possible).

My question is whether the IRS computers will find the tax calculation off or something. Do they pick up on stuff like that? I just want to be honest obviously but without having paid the tax yet I don’t know quite what to do!

Thanks all


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## Moulard (Feb 3, 2017)

You either use a cash basis - in which case you would report the taxes in the US tax year that they are paid. 

Or you use an accrual basis - in which you would report taxes in the year the tax liability was accrued


For any person who lives in a country where the tax year does not match the calendar year, using the cash basis means that tax you are reporting will be out of sync with the income that you are reporting.

As an example.. the Oz tax year runs July - June... so in my 2021 tax return I reported Oz income tax paid for the July 20 - June 21 Australian tax year. 

For ordinary wage earners this isn't too much of a worry if local tax rates are high enough to dampen out any impacts of currency fluctuations.

If your income is highly variable and you are only just starting to use FTCs and do not have a stockpile of tax credits from prior years, then it can be better to use an accrual method of accounting.

The downside is that you will be stuck using accrual method of accounting moving forward.


That said, to answer your last question, the IRS has no access to foreign income information outside of a request to the foriegn tax authority - and that doesnt happen unless there are significant dollars involved (think millions) and you are already under investigation. Basically the IRS has to trust the information you provide.


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## CA5243 (7 mo ago)

Hi @Moulard thank you for your reply....very helpful!


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