Foreign Tax Credit and Form 1116

Double taxation on foreign income is a problem that most US expatriates and Green Card holders face each year when they file their income returns. However, this is not necessary all of the time. There are several ways to avoid taxation on foreign income. Naming two: the Foreign Earned Income Exemption (FEIE) and the Foreign Tax Credit (FTC). Both can provide US expats with a valuable benefit that is intended to reduce the double tax burden that would otherwise arise when their foreign source income is taxed by both the US and the foreign country from which the income is made.

Foreign tax credit laws are extremely complex and tax treaties complicate matters even more. That is the main reason that expats should consult a international tax professional when preparing their income tax returns. If you are seeking advice contact us now.


Foreign Tax Credit

Foreign tax credit can beneficial to many taxpayers living and paying income overseas. With Foreign Tax Credit you are able to:

·      Reduce your actual US income tax on a dollar for dollar basis

·      If the taxes paid or accrued exceed the credit limit for that year, you may be able to carry back the excess to the prior tax year or carry it forward up to 10 years

·      You do not have to meet the bona fide residence or physical presence tests

·      You may more easily qualify for tax benefits such as Child Tax Credits or the ability to make a contribution to a Roth IRA.


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