Music, music, double-taxation can be a real problem. You can potentially be taxed twice on income earned outside the USA. Congress recognized this problem and in 1918 enacted the foreign tax credit. It was simple at first, then they realized what sort of doors they opened to people like me and it got more complex. Let's cover the basics again. A credit is allowed for foreign income taxes paid or accrued. Taxpayers get a choice each year of claiming a credit or deduction for these taxes. The credit is limited to the average part of US tax for the year caused by foreign source net taxable income. Determining what this part is requires determining foreign source gross income, total gross income, and allocating and apportioning deductions. I'll talk about the allocation and apportionment of deductions in a later lecture, and I've already talked about foreign source gross income. The amount of foreign tax eligible for the credit may exceed the amount of the limit for the credit. Any excess foreign tax credit is carried forward (the carryover amount) and the foreign tax in the carryover year is combined and then subject to the credit limit in that year. The foreign tax credit is not refundable. A separate credit and limit is computed for regular tax and for AMT. No credit is allowed against the self-employment tax or the additional tax on net investment income. And now for some details. Taxpayers get a choice of claiming a foreign tax credit or deducting those foreign taxes. This isn't an election, it's a choice and it can be changed. It can be changed after the return for a year has been filed. You get 10 years to change your mind and change it again and again. Changing the choice after a return is...
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Video instructions and help with filling out and completing Form 3520 Credits
