Hi,
Many U.S. citizens living abroad and foreign nationals living in the United States pay tax twice on the same income – once to another country and again to the U.S. – because the foreign tax credit (FTC) was missed, calculated incorrectly, or never carried forward.
As a result, they can overpay by tens of thousands of dollars. This commonly affects two groups:
- U.S. citizens living abroad, who generally remain required to report income from around the world on a U.S. tax return.
- Foreign nationals living in the United States, including green card holders and others treated as U.S. tax residents, who may also be required to report worldwide income.
If you received any of the following, there is a good chance the foreign tax credit needs to be reviewed:
- Salary or consulting income earned in another country
- Income earned before or after moving to the United States
- Income from a foreign business or partnership
- Dividends or interest from accounts outside the United States
- Rent from foreign property
- A foreign pension or retirement account
- Stock compensation earned while working in multiple countries
- Investment income with foreign tax withheld
- Income reported in both the United States and another country
Here’s how the savings can work:
- If you earned $100,000 abroad and paid $25,000 in foreign income tax, the credit could reduce your U.S. tax bill by as much as $25,000.If you received $200,000 of foreign-source income and paid $30,000 to another country, a properly claimed credit could prevent you from paying that same $30,000 twice.
- If the full credit cannot be used this year because of the IRS limitation, eligible unused foreign taxes can generally be carried back one year or forward for up to 10 years.
- If foreign taxes were missed on prior returns, it may still be possible to amend those returns and recover money you already paid.
The catch is that the calculation is rarely as simple as entering the amount shown on a foreign tax statement. Different rules can apply to wages, business income, dividends, interest, rent, pensions, and treaty-based income.
One of the biggest mistakes is assuming that foreign income does not need to be reported because it remains outside the United States. Another is reporting the income without claiming the available credit for taxes already paid abroad.
We review all foreign income and taxes paid or withheld, unused credits from prior years, available carrybacks and carryforwards, and any applicable income-tax treaty provisions, so you don’t pay a dime more than needed.
Reply to this email by Wednesday, and we will schedule a free 15-minute call with our international tax team. Bring your most recent U.S. return, foreign return, and any statements showing foreign income or taxes paid.
We will review your situation to determine whether a credit was missed or a different approach could lower your tax bill.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com