citizen working abroad can choose either the foreign tax credit or the foreign earned income exclusion when calculating his U.S. income tax liability. By using the former, the foreign tax paid can be used as a credit against the U.S. tax to the extent of the U.S. tax liability ...
Just because you have to report income doesn’t necessarily mean Uncle Sam will send you a tax bill. For example, two mechanisms may keep a hunk of your foreign income and assets from the IRS: the foreign earned incom...
A shareholder of a mutual fund may also claim the credit or deduction based on the foreign taxes paid by the mutual fund that passes through to the shareholders.FTC CalculationIf the taxpayer claims the foreign earned income exclusion, then he cannot also claim the foreign tax credit. The ...
They may qualify for the Foreign Earned Income Exclusion or Foreign Tax Credit to avoid double taxation. FATCA compliance is particularly important for Americans abroad with foreign retirement accounts or investments. Failure to report can result in significant penalties, including $10,000 for non-...
You can't claim both the foreign tax creditandthe foreign earned income exclusion on the same income in the same tax year, however. You can claim a foreign tax credit on the income that wasnotexcluded from tax if only part of your wages or self-employed income is excluded. ...
By understanding how to claim the FTC, recognizing common pitfalls, and strategically maximizing its benefits, you can effectively manage your global tax obligations. Whether choosing between the FTC and the Foreign Earned Income Exclusion, or managing carryovers and carrybacks, proper planning can ...
In such cases, alternative tax strategies—such as the Foreign Tax Credit—may be more helpful. Once you choose the FEIE (and/or the Foreign Housing Exclusion), you must use it every year you have foreign earned income unless you formally revoke it. Once revoked, you cannot use the FEIE ...
If the taxpayer claims the foreign tax credit or the housing credit, then the IRS will consider that to be a revocation of the election to claim the foreign earned income exclusion.Foreign Earned IncomeForeign earned income is considered a compensation for personal services performed in the ...
, you must meet specific requirements, such as having a tax home in a foreign country. You must also meet the Bona Fide Residence Test or the Physical Presence Test. It’s important to note that income earned from the U.S. government or its agencies does not qualify for this exclusion....
If you claim the foreign earned income exclusion and/or the foreign housing exclusion, you can't take a foreign tax credit for taxes on the income you excluded (or could have excluded). If you do, the IRS could revoke one or both of your choices.7 Refundable vs. Non-refundable Tax Cr...