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The US Internal Revenue Service (IRS) has released a revised version of its tax guide on foreign tax credits (FTCs) for use by individuals when preparing their 2016 tax returns.
If taxpayers paid or accrued foreign taxes to a foreign country on foreign-source income and are subject to US tax on the same income, they may be able to take either a credit or an itemized deduction for those taxes. Taken as an FTC, foreign income taxes reduce the taxpayer's US tax liability.
The guide provides information on how to choose to take the FTC or the deduction; who can take the credit or deduction; what foreign taxes qualify for the credit; how to calculate the credit; and how to carry over unused foreign taxes to other tax years.
While a taxpayer can change his or her choice for each year's taxes, a credit cannot be taken for foreign taxes paid or accrued on certain income that is excluded from US gross income.
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