Living abroad as an expat you have the opportunity to claim a Foreign Tax Credit to avoid dual taxation. Dual taxation is when two different countries impose tax on the same income. By completing Form 1116 and attaching it to your Individual U.S. expat tax return, you can claim this credit and avoid paying US tax on income that you have already paid on in your foreign tax home.
To qualify for the Foreign Tax Credit you must:
- Have earned income.
- Paid tax or acquired a tax liability that you will have to pay in the future.
- Live in the foreign country legally.
Claiming the Foreign Tax Credit directly offsets your U.S. taxes for any income earned overseas. This can only be used to offset U.S. taxes on your interest, dividends or compensation earned abroad. It cannot exceed the amount of U.S. taxes you pay on the foreign income. If it does exceed that amount, you can carry forward the balance to future tax years.
Contact Expatriate Tax Returns if you need more information or to help you to determine if you are eligible for this credit!