As a US Citizen or a Green Card Holder reside outside the United States in a country that cost you taxers on all of your earned income within this country, you may be qualified to take a tax credit to offset your US tax liabilities based on the tax treaty between the country you live in and United States of America.
- What information you need to complete your form 1116
- You must pay a foreign tax liability
- The paid foreign tax must be related to an earned income or investment in the foreign country
- What are your foreign tax credit options?
- Paid taxes to your resident foreign country deduction on your current year taxes
- if no US Tax liabilities, the paid foreign taxes will be carried forward up to 10 years
- Paid Foreign Taxes Currency
- Amount paid in US Dollars
- Amount of taxes paid in the local currency of the country of residence
- Foreign Tax Credit Limit
- The amount if Foreign tax Credit can not exceed the amount of taxes paid in the foreign country in the same year
- Other limits apply such as paid foreign taxes related to dividends, interests related to financial service income, taxes paid related to 10% or more ownership of foreign corporation or partnership…etc.
- Foreign Tax Credit can not be sued with any income already excluded by the Foreign Earned Income Exclusion.
Check the form 1116 Sample below to better understand.
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