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Tag Archive for Foreign Tax Credit

Guidance Related To The Foreign Tax Credit, Including Guidance Implementing Changes Made By The Tax Cuts And Jobs Act

IRS - Foreign Tax Credit Guidance

Background

The Act made several significant changes to the Internal Revenue Code with respect to the foreign tax credit rules and related rules for allocating and apportioning expenses for purposes of determining the foreign tax credit limitation. In particular, the Act repealed the fair market value method of asset valuation for purposes of allocating and apportioning interest expense under section 864(e)(2), added section 904(b)(4), added two foreign tax credit limitation categories in section 904(d), amended section 960(a) through (c), added section 960(d) through (f), and repealed section 902 along with making other conforming changes. The Act also added section 951A, which requires a United States shareholder of a controlled foreign corporation (“CFC”) to include certain amounts in income (a “global intangible low-taxed income inclusion” or “GILTI inclusion”).

This document contains proposed regulations (the “proposed regulations”) addressing (1) the allocation and apportionment of deductions under sections 861 through 865 and adjustments to the foreign tax credit limitation under section 904(b)(4); (2) transition rules for overall foreign loss, separate limitation loss, and overall domestic loss accounts under section 904(f) and (g), and for the carryover and carryback of unused foreign taxes under section 904(c); (3) the addition of separate categories under section 904(d) and other necessary updates to the regulations under section 904 including revisions to the look-through rules and other updates to reflect pre-Act statutory amendments; (4) the calculation of the exception from subpart F income for high-taxed income under section 954(b)(4); (5) the determination of deemed paid credits under section 960 and the gross up under section 78; and (6) the application of the election under section 965(n).

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What U.S. Expat Needs To Know About Foreign Earned Income Exclusion

Olivier-Wagner- What U.S. Expat needs to know about Foreign Earned Income Exclusion

While all Americans are taxed in their worldwide income regardless where they reside, they also have Foreign Earned Income Exclusion to reduce the tax burden. And this is what our today’s tax infographic is about. In 2018 you can eliminate up to $104,100 of foreign earned income on your U.S. expat tax return. Let’s look into details and what this exclusion is about. Read more

Form 1116: What Is The Catch?

Virtual Tax Advisor

Although Form 1116 is a great benefit, there are some limitations to this tax credit that you should be aware of.

  1. The money earned needs to be subject to income tax in the foreign country. Unfortunately, you cannot use the credit to offset the cost of the property or other taxes paid abroad. Income only!
  2. The credit can be up to the amount you paid the foreign country. However, it is limited to no more than the percentage of your income that was earned overseas. So if you only earned 40% of your income in a foreign country that was subject to taxation abroad, then you cannot take a deduction equal to more than 40% of your U.S. tax burden.
Look At Expat Example Using Foreign Tax Credit

Mark and Sylvia have been living and working in Spain for three years. They are full-time residents and earn all of their foreign earned income through the Spanish companies they work for (perhaps, you can relate to this example of how to claim the Foreign Tax Credit):

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Filing Taxes As An American Living In Mexico – US Expatriate Taxes Explained

You are going to be required to file US expat taxes no matter in which country you live, but how will they be affected if you’ve chosen to live in Mexico?  With the familiar language, proximity to the US, warm weather, and beautiful geography, Mexico is one of the most popular destinations for American expatriates.  It is essential to understand how your US tax return will be affected by your move to Mexico, and what US taxes you will be required to pay. On top of your obligation to file and pay US taxes, Mexico has taxes of its own. Read on for the details you need! Read more

IRS Reminds Those With Foreign Assets About U.S. Tax Obligations

WASHINGTON — The Internal Revenue Service today reminded U.S. citizens and resident aliens, including those with dual citizenship, to check if they have a U.S. tax liability and a filing requirement. At the same time, the agency advised anyone with a foreign bank or financial account to remember the upcoming deadline that applies to reports for these accounts, often referred to as FBARs.

Here is a rundown of key points to keep in mind:

Deadline For Reporting Foreign Accounts Read more

Foreign Tax Credit For Individuals Living Abroad

As you know, the United States requires all citizens and permanent residents (Green Card holders) to report income via annual income tax filings regardless of where in the world the money was earned. As the name suggests, the Foreign Tax Credit for individuals is designed to reduce your U.S. tax burden on income that was earned and consequently taxed in a foreign country. In this way, you will not be subject to double taxation on that money.

In addition to foreign earned income (FEI), dividends, interest, and even rental income that come from foreign sources are eligible for consideration with the Foreign Tax Credit if they were taxed by a foreign entity. One benefit to using this credit is that it is available to all U.S. taxpayers who have foreign earned income or investment income from a foreign source. There are no stipulations regarding residency or time spent in a foreign country to take advantage of this reduction in taxes owed at home. Read more

Expats: Buying Or Selling Real Estate Abroad

All Americans are required to file U.S. taxes and report their worldwide income, wherever in the world they live. Thankfully there are a number of IRS exemptions that can be claimed to reduce or eliminate U.S. tax liability for expats, however even if no U.S. tax is owed, expats still have to file an annual federal return.

There are thought to be around 9 million Americans living overseas, many of whom, particularly those who have moved abroad permanently, consider purchasing foreign real estate. Read more

Tax Filing For American Freelancers Living Abroad

Millions of Americans living abroad are working as freelancers. Some work mainly for one or more American firms, others freelance for foreign firms or provide services directly to small firms or individuals. Many are settled permanently in one foreign country, others are intending to return to the U.S. after a few years, or they may be Digital Nomads, roaming between Wi-Fi hotspots in different countries providing freelance services online. Read more

U.S. Citizens’ Foreign Tax Credits Against The 3.8% Obamacare Surtax

John Richardson

I wrote a post on August 7, 2016 which discussed the August 5, 2016 decision of the United States Court of Appeals – District of Columbia Circuits in the Esher case. In this case, Justice Millet ruled that:

That extreme reading of the Totalization Agreement rests on nothing more than the Commissioner’s own say-so. It lacks any grounding in the Agreement’s text or in any principle governing the interpretation of international agreements. The tax court’s corresponding disregard of the Totalization Agreement’s textual direction concerning the role of French law in resolving undefined terms and in determining the content of the laws enumerated in Article 2(1)(b) was error and requires reversal.

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Nonrefundable Tax Credits vs. Refundable Tax Credits

A nonrefundable tax credit is a credit that can reduce the amount of an individual’s tax liability to zero, but cannot exceed the total amount of income taxes owed. In other words, you would not receive a tax refund if the credit exceeds the amount of your tax liability. For example, if you have a nonrefundable tax credit of $5,000 and a tax liability of $3,000, the credit will eliminate the tax liability, that is, reduce it to zero. The remaining $2,000 of the credit, however, will be lost, because the IRS will not send you a refund for this amount.

Nonrefundable credits for tax year 2014 include the following:

• Credit for child and dependent care expenses.
• Child tax credit. Read more

Learning The Mechanics of A Foreign Tax Credit!

Income tax systems that tax residents on worldwide income (such as the American tax system) generally offer a foreign tax credit to relieve a potential for double taxation. This credit is usually limited to the income attributable to foreign source income.

What does this mean? If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes.

This means that, if taken as a deduction, foreign income taxes reduce your U.S. taxable income. Or if taken as a credit, foreign income taxes reduce your U.S. tax liability. One can choose whether to take the amount of any qualified foreign taxes paid or accrued during Read more

Calculating The Foreign Tax Credit In 3 Easy Steps

The U.S. taxes U.S. persons on all of their income, regardless of its source. This creates a double taxation problem with respect to a U.S. person’s foreign-source income, since foreign countries usually tax all the income earned within their borders, including that derived by U.S. persons.

If the U.S. did nothing to mitigate international double taxation, U.S. companies would be at a competitive disadvantage in overseas markets, since their total tax rate would exceed that of their foreign competitors by the amount of the U.S. tax burden on foreign-source income.

The U.S. mitigates international double taxation by allowing U.S. persons a credit for any Read more