What is the Foreign tax credit?
The foreign tax credit is a federal tax provision that allows US citizens and resident aliens to offset their US income tax dollar-for-dollar with income, war profits, and excess profits taxes paid or accrued to a foreign country or US possession during the year. The credit is limited to the proportion of US tax attributable to foreign-source income within each category, and excess credits may be carried back one year and forward up to 10 years. Form 1116 computes the limitation separately for passive, general, and other categories. Pairing the credit with a Traditional 401k strategy improves planning.
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