Publication 514, Foreign Tax Credit for Individuals

Foreign Tax Credit for Individuals (FTC) is a tax benefit that helps alleviate double taxation on income earned abroad. If you paid foreign taxes on your overseas earnings, you may be eligible for a credit or deduction against your U.S. tax liability. Publication 514 (2024) provides crucial guidance on claiming this credit.

Who Should use Publication 514?

A. U.S. citizens or residents who paid or accrued foreign taxes on their foreign source income.

B. Individuals considering claiming the FTC or the foreign tax deduction.

What Does Publication 514 Cover?

A. Types of creditable foreign taxes: Income taxes paid to foreign governments, withheld taxes, and certain other taxes.

B. Foreign tax credit calculation: Explaining the foreign tax credit limitation and different methods for calculating the credit.

C. Special situations: Rules for community income, foreign trusts, and foreign currency.

D. Claiming the foreign tax deduction: Eligibility and limitations.

E. Recordkeeping requirements: Maintaining documentation for your foreign taxes and income.

Key Points to Remember About Publication 514:

  • Eligibility: You must include your foreign source income on your U.S. tax return to qualify for the FTC.
  • Credit vs. Deduction: You can choose to claim the FTC as a credit, directly reducing your U.S. tax liability, or claim it as a deduction, reducing your taxable income.
  • Claiming the FTC: Use Form 1116 to calculate and claim the FTC.
  • Limitations: The FTC is limited to your U.S. tax liability on your foreign source income.