SOURCE: US Tax Professionals

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February 18, 2016 14:59 ET

US Tax Specialists Provide Scoop on Foreign Tax Credits

US Tax Company Releases Blog Outlining Conditions That Allow US Citizens and Green Card Holders to Exclude Foreign Income on Their US Tax Returns

VANCOUVER, BC--(Marketwired - February 18, 2016) - US Tax Professionals, a Vancouver-based firm that specializes in taxation, has some useful advice on foreign tax credits. According to Form 1116, taxpayers may choose to either claim a foreign tax credit or a tax deduction on Schedule A (Form 1040) for taxes paid to a foreign government or US possession on income that is also subject to US income tax. For more information, go to:

Although taxpayers cannot claim both the credit and the deduction for the same foreign tax, a Schedule A deduction is allowed for certain taxes that do not qualify for the foreign tax credit. The article goes on to list which credits do not qualify for the credit and then explains the limits: "Generally, the foreign tax credit is limited to US tax multiplied by the ratio of foreign taxable income to total taxable income (before personal exemptions)."

The limit is calculated on Form 1116 and requires separating foreign-sources income into specified categories such as general and passive income. The foreign tax credit limit does not apply to taxpayers who elect to claim the foreign tax credit without filing Form 1116.

Finally, the article provides several scenarios of how taxpayers can receive a credit without filing form 1116. Taxpayers can claim the foreign tax credit on line 48 of Form 1040 without filing Form 1116 if, for example, in dividend income, the shares were held for at least 16 days.

Tax credits are the result of the Canada-US Tax Treaty, which has been in effect since 1980. The purpose is to avoid double taxation and to prevent tax evasion on foreign-earned income. Through in-depth understanding of the treaty and how tax credits work, a Canadian-American tax professional can help determine how to reduce the amount collected on dividends, royalties and interest.

About the Company

US Tax Professionals provide tax services for dual American and Canadian citizens in Vancouver. Founded in 2013, they specialize in taxation for US citizens and expats, taxation and accounting for business, cross border taxation for US and Canadian citizens, as well as accounting and taxation of alternative investments, including private equity funds and hedge funds.

For more information, visit or call (604) 949-1559.

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