Foreign Tax Credit (FTC)
A dollar-for-dollar credit on the US tax return for income taxes paid to a foreign country, designed to prevent double taxation.
Detailed Explanation
Claimed on Form 1116, the FTC is limited to the proportion of US tax attributable to foreign-source income. Excess credits can be carried back one year or forward ten years. The FTC is generally more beneficial than the Foreign Earned Income Exclusion (FEIE) for taxpayers in high-tax foreign jurisdictions. Different categories of foreign income (passive, general, GILTI, foreign branch) are computed separately, and the FTC requires careful sourcing analysis on a category-by-category basis.
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Learn about International TaxationRelated Terms
Foreign Earned Income Exclusion (FEIE)
A tax provision allowing qualifying US citizens and residents living abroad to exclude a portion of foreign-earned wages and self-employment income from US taxation.
GILTI (Global Intangible Low-Taxed Income)
A US tax on foreign income earned by Controlled Foreign Corporations in excess of a deemed routine return on tangible assets.
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