I switched this year from H&R Block to TaxAct 2012, and I have to say that so far I am quite impressed. It really simplified that foreign tax credit calculations, and even does the “nightmare form” 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) in a relatively simple manner. It even does some of the weird shit like putting Sec 1291 interest in the bottom margin of Form 1040.
The process I use is something like this:
1) Put everything euro related on a spreadsheet and calculate all the IRPF taxes paid, and paycheck received.
2) Run the numbers once with an average exchange rate and second time with a date lookup exchange rate (stick the exchange rate data in a separate page and use the VLOOKUP function in Excel to pull out the exchange rate).
3) See which way saves you the most taxes. For me, using the per-day exchange rate saved me about $5000 in taxes since my bonus was paid at a time when the euro was very low, and the Spanish taxes got withheld later on when the euro was higher.
4) Once you have all the numbers, put it into the tax program. Use Excel to sanity check your data (eg that your passive foreign tax credits add up to the expected value).
Let’s see how my 38 page magnum opus gets received by the IRS.