Foreign Tax Credit

If you paid taxes to a foreign country, either directly or through a conduit such as a mutual fund, you may be entitled to a tax credit. This credit can be claimed by filing Form 1116, Foreign Tax Credits.

You also have the option of deducting the foreign taxes paid you paid as an itemized deduction on Schedule A, However, claiming the credit will nearly always save you more money.

But Form 1116 is relatively lengthy and complicated to fill out, so the IRS provides a simpler method for claiming the credit under certain circumstances. You may elect to claim the foreign tax credit without filing Form 1116, if your total foreign taxes are not more than $300 ($600 if married filing jointly). To make the election, just enter on the foreign tax credit line of your tax return (for example, Form 1040, line 47) the smaller of (a) your total foreign tax or (b) your regular tax. This election does not apply if you are carrying forward or carrying back any unused foreign taxes from other tax years.

Planning Tools You can download Schedule A and Form 1116 to aid in your financial planning.

Save Time , For more information, get IRS Publication 514, Foreign Tax Credit for Individuals.

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