Answer:
Based on the web search results, it is generally better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction12. This is because:
A credit reduces your actual U.S. income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax12.
You can choose to take the foreign tax credit even if you do not itemize your deductions. You then are allowed the standard deduction in addition to the credit1.
If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year1.
To illustrate this, let’s assume that the corporation has a U.S. tax rate of 21%, which is the federal corporate tax rate3. If the corporation chooses to take a $2M foreign tax credit, it could reduce its U.S. tax liability from $2.1M ($10M x 0.21) to $100K ($2.1M - $2M). If the corporation chooses to deduct the $2M foreign taxes as an itemized deduction, it could reduce its taxable income from $10M to $8M, and its U.S. tax liability from $2.1M to $1.68M ($8M x 0.21). Therefore, the corporation would save more its U.S. tax liability from $2.1M to $1.68M ($8M x 0.21). Therefore, the corporation would save more taxes by taking the credit than by taking the deduction.
However, there are some limitations and conditions that apply to the foreign tax credit, such as:
The foreign tax credit is equal to the U.S. tax attributable to a taxpayer’s foreign-source income, or the amount of foreign tax paid, whichever is less3.
The foreign tax credit can only reduce U.S. taxes on foreign source income; it cannot reduce U.S. taxes on U.S. source income1.
The foreign tax must be a legal and actual foreign tax liability that is imposed on you1.
You must have paid or accrued the foreign tax to a foreign country or a U.S. possession1.
The foreign tax must not be refundable or waived by the foreign country1.The foreign tax credit is equal to the U.S. tax attributable to a taxpayer’s foreign-source income, or the amount of foreign tax paid, whichever is less3.
The foreign tax credit can only reduce U.S. taxes on foreign source income; it cannot reduce U.S. taxes on U.S. source income1.
The foreign tax must be a legal and actual foreign tax liability that is imposed on you1.
You must have paid or accrued the foreign tax to a foreign country or a U.S. possession1.
The foreign tax must not be refundable or waived by the foreign country1.
Therefore, before claiming the foreign tax credit, you should consult with a qualified tax professional and review the IRS Publication 514, Foreign Tax Credit for Individuals1. You should also compare your tax liability under both options (credit or deduction) and choose the one that benefits you most