What should a taxpayer do if they previously claimed the foreign earned income exclusion?

When a taxpayer has previously claimed the foreign earned income exclusion, it is essential to understand the interaction between the exclusion and the foreign tax credit. The foreign earned income exclusion allows taxpayers to exclude a certain amount of foreign earnings from their taxable income, but it also affects how they claim the foreign tax credit.

Once a taxpayer excludes foreign earned income, they cannot simultaneously claim a credit for taxes paid on that excluded income. This is because the foreign tax credit is intended to alleviate double taxation on income - if that income is being excluded from tax, claiming a credit on it would essentially provide a double benefit. Therefore, if a taxpayer has previously utilized the foreign earned income exclusion, they must forgo claiming the foreign tax credit on that income to remain in compliance with tax rules.

Recognizing this is crucial for taxpayers as it affects their overall tax strategy and potential refund scenarios. It’s also important to note that the other options provided do not correctly reflect the rules governing these credits and exclusions, making the idea of switching to a deduction at any time or ignoring previous exclusions misleading in this context.