What is the foreign tax credit, and do I qualify?

The Foreign Tax Credit is a credit for income taxes paid to a foreign country, and it is designed to help minimize the burden of double-taxation.

In order to qualify for the foreign tax credit, taxpayers must meet all four of the following requirements:

  • The tax must be imposed on you by a foreign country.
  • 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.

Keep in mind that the foreign tax credit only applies to taxes imposed on foreign income. You can’t claim a credit for taxes you may have paid on U.S.-sourced income.  You can’t claim the credit for any taxes you paid that could be refunded or forgiven, either.

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