September 13, 2008

USA Tax Payers - How to avoid double taxation?

When calculating your income tax liability for 2008, you can take the advantage of taxes paid in foreign countries on your income. However, the advantage is limited only to those incomes which are included in your US Taxable Income i.e. you may not claim a foreign tax credit or deduction for taxes paid on income not subject to US Tax.
You can ascertain your foreign tax credit by using the following calculation:
Total Income from Foreign Sources x Your US Tax Liability/Your Total Worldwide Income

The amount of your foreign tax credit will reduce your total tax liability.
There is also an option to treat the foreign tax as a deduction from your taxable income but this would be less advantageous than taking the credit as deduction from taxes.
Also, the foreign tax credit is allowed based on some restrictions as to the residency status and types of incomes.

1 comment:

  1. Quite Informative and helpful.


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