Publication 514 (2023), Foreign Tax Credit for Individuals

Publication 514, also known as "Foreign Tax Credit for Individuals," is your official guide to claiming credit or deducting foreign income taxes paid on your US tax return.

Who is Eligible?

  • U.S. citizens and resident aliens who paid or accrued foreign income taxes.
  • Individuals who earned foreign source income subject to U.S. taxation.

What Does Publication 514 Cover?

A. Eligibility: Who qualifies for the FTC, including income types and residency requirements.

B. Credit vs. Deduction: Understanding the difference between claiming the FTC as a credit (directly reducing your tax) or as a deduction (lowering your taxable income).

C. Calculating the Credit: Step-by-step instructions on how to determine the amount of credit you can claim, considering limitations and carryover rules.

D. Foreign Taxes Covered: Which foreign taxes qualify for the credit and which ones don't.

E. Recordkeeping Requirements: Documentation needed to support your FTC claim.

F. Special Situations: Guidance for specific scenarios, like foreign partnerships, community property, and foreign tax redeterminations.

Key Points to Remember About Publication 514

A. Claiming the FTC: You can choose either a credit or an itemized deduction for your foreign taxes. The credit directly reduces your U.S. tax liability, while the deduction lowers your taxable income.

B. Calculating the Credit: Form 1116 helps calculate the credit amount, considering limitations based on your income and foreign taxes paid.

C. Carryover and Carryback: Unused credit amounts can be carried forward to future years (carryover) or back to previous years (carryback) under specific conditions.

For the current year's Publication 514, click here.

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