Foreign Tax Credit and Double Taxation

A U.S. taxpayer overseas may be able to reduce US income taxes by claiming the foreign tax credit on Form 1116.

Taxpayers can choose to deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit. We do comparative analysis of both the scenario and implement the most beneficial option for your tax return.

Requirements FOR Foreign Tax Credit

An expatriate must meet all four of the following requirements:

- The tax must be imposed on you

- You must have paid or accrued the tax

- The tax must be the legal and actual foreign tax liability

- The tax must be an income tax

Foreign Income

Qualifying Foreign Income

- Compensation for services performed outside the United States

- Interest income from a payer located outside the United States

- Dividends from a corporation incorporated outside the United States

- Gain on the sale of non-depreciable personal property you sold while maintaining a tax home outside the United States, if you paid a tax of at least 10% of the gain to a foreign country

To summarize, the foreign tax credit is a non-refundable tax credit for income taxes paid to a foreign government as a result of foreign income tax withholdings. The foreign tax credit is available to anyone who either worked in a foreign country or has investment income from a foreign source.

For more information about the Foreign Tax Credit or If you need help with filing a U.S. tax return with the foreign tax credit, please click on the button below