What is Foreign tax credit?
In short
The foreign tax credit lets US taxpayers reduce their US income tax by foreign income taxes paid, so the same income isn't taxed twice.
Key takeaways
- The credit is limited to the US tax on foreign-source income: US tax × foreign-source taxable income ÷ worldwide taxable income.
- Excess credits can generally be carried back one year and forward ten.
- Individuals can choose to deduct foreign taxes instead.
Where it's tested
TCP: Multi-Jurisdictional & International Basics — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
The foreign tax credit is designed primarily to: