Stephen C. Fox, CPA
U.S. International Tax
Stephen C. Fox, CPA, CMA
PO Box 880695
Port Saint Lucie,  FL  34988
+1(973) 610-5669
Foreign Tax Credit for Individuals

The U.S. grants a foreign tax credit against U.S. Federal income tax. This credit is limited to the portion of your U.S. tax considered generated by foreign source taxable income. The credit is computed and limited separately for the regular and alternative minimum taxes.

Foreign Income Taxes
Only foreign income taxes qualify for the credit. Generally, a foreign tax is an income tax if it is imposed on net income. Most foreign individual income taxes qualify. Many foreign social insurance taxes do not.

Foreign taxes eligible for the credit are reduced for the portion of income excluded under the foreign earned income exclusion. SeeForm 1116, line 12.

The limitation imposed each year on foreign tax credit is
     Foreign source taxable income
     -----------------------------------     x     U.S. tax (regular or AMT)
        Worldwide taxable income

Foreign source taxable income is foreign source income less allocated and apportioned deductions. Foreign source gross income is reduced by the foreign earned income exclusion. Business expenses of a self employed individual, except interest and research expenses, are allocated and apportioned based on gross income of the business or another factually supportable basis. Research expenses are apportioned between U.S. and foreign source income based on either sales or gross income, with an election applying for five years. Interest expense as well as certain itemized deductions are apportioned based on gross income.

Calculations relating to the foreign tax credit can be quite complex, even for individuals, particularly when the individual excludes income on Form 2555. Get the personal, professional help you need by calling or e-mailing Steve Fox.
It's your business:  get personal.  Call Steve Fox at  1(973) 610-5669  or  email steve @ sfoxcpa .com
Get the best tax reference source, available for your desktop or portable device:   Income Tax in the USA 2016