Interactive Guide to the Foreign Tax Credit
This tool simplifies the Instructions for Form 1116, helping you understand how to claim a credit for taxes paid to a foreign country and avoid double taxation.
Credit vs. Deduction: What's the Difference?
You can either take a credit or a deduction for foreign taxes, but not both for the same taxes. A credit is almost always better because it reduces your tax liability dollar-for-dollar.
Tax Credit
A $1,000 credit directly reduces your U.S. tax bill by $1,000.
Tax Deduction
A $1,000 deduction only reduces your taxable income. If you're in the 24% tax bracket, this only saves you $240.
Step 1: Can You Skip Filing Form 1116?
Before diving into calculations, let's see if you qualify for the simplified election. This allows you to claim the credit directly on your tax return without the detailed Form 1116. Answer the questions below to find out.
Step 2: Foreign Tax Credit Calculator
If you need to file Form 1116, this tool simplifies the calculation. Input your income and foreign tax details to estimate your credit. The credit is limited to the U.S. tax on your foreign income; you can't use it to offset tax on U.S. income.
Your Financial Information
Your gross foreign income minus directly related deductions. This is like line 7 of Form 1116.
Your total taxable income from all sources (U.S. and foreign). This is line 18 of Form 1116.
Your total U.S. tax liability before any credits. This is line 20 of Form 1116.
The total amount of creditable income taxes you paid to foreign countries. This is like line 14 of Form 1116.