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Tag Archive for Form 1116

Form 1116: What Is The Catch?

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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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A Point To Ponder

Most of us remember the good old days of the 1990s – a seemingly decisive victory in the First Persian Gulf War, the dot-com bubble that transformed computer geeks into nouveau riche millionaires, and a string of world championships that made the New York Yankees appear seemingly unbeatable. President Bill Clinton did a good job of manning the wheel during most of the decade, although truth be told, almost anyone can sail a ship when the seas are calm and a gentle but steady breeze is filling the sails.

Mr. Clinton did have his shortcomings, most notably his interaction with a certain intern which led to. . . well, we’ll skip all the sordid details. He was certainly not the first President to behave in such a manner, and he will not be the last one, but he was the only one to be caught in such a dramatic fashion. After he appeared before a federal grand jury, Read more

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