TORONTO, May 16, 2022 /PRNewswire/ -- The U.S. is one of a few countries in the world operating on a citizenship-based taxation basis, meaning that U.S. citizens are taxed on their worldwide income regardless of where they live.
While this is a clear disadvantage to U.S. citizens living overseas, many such U.S. citizens don't actually have U.S. tax owing due to several mechanisms, one of which is the Foreign Tax Credit (FTC), the other is the Foreign Earned Income Exclusion (FEIE).
One advantage of the Foreign Tax Credit (FTC) is that it doesn't have many requirements beyond 1) that the income is foreign-sourced and 2) that the taxpayer paid tax to a foreign country.
In addition, the Foreign Tax Credit (FTC) presents the following advantages:- It allows someone to carry the excess taxes paid for up to 10 years, thereby allowing them to use them in future years. It would be useful if they are later subject to a lower tax rate in their foreign country.- It allows the taxpayer to contribute to an IRA, which is not generally possible when using the Foreign Earned Income Exclusion (FEIE)- It allows the taxpayer to request the Additional Child Tax Credit (a refundable tax credit of up to 1,400 USD per child per year). Those living less than 6 months out of the year in the US are not eligible for the increased amounts announced by the Biden administration.
As with many tax rules, the Foreign Tax Credit (FTC) is more complex than the summary above. Please check 1040 Abroad's authoritative guide on the Foreign Tax Credit (FTC) guide using this link to know everything there is to know about the Foreign Tax Credit (FTC).
is a tax firm founded in 2012, consisting of a unique international team that is led by a U.S. expat.
Always having our client's best interests in mind, we work hard to make sure that U.S. expats become tax compliant and live their life abroad free of any hassle.
Press release distributed by PRLog
SOURCE 1040 Abroad