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If you paid foreign income taxes, you might qualify to claim the foreign tax credit. The foreign tax credit helps relieve the burden of paying taxes twice on the same income. The credit is nonrefundable. You can have carryover and carryback for any amounts you can't use in the current tax year.
To claim the foreign tax credit, all of these must be true:
Types of foreign income you might have paid foreign income taxes on include:
You can claim either a foreign tax credit or a deduction for the foreign taxes paid. Usually, the credit will give you the larger tax savings. However, some restrictions on the credit might make the deduction the better option for you.
Some international mutual funds invest in foreign businesses and pay foreign income taxes. If you own shares in an international mutual fund, you might qualify to claim the foreign tax credit. See the Form 1099-DIV your mutual fund company sent you to find out.
Use Form 1116: Foreign Tax Credit to calculate foreign tax credit. However, you can claim the credit directly on Form 1040 if you meet all of these conditions:
To learn more, see Publication 514: Foreign Tax Credit for Individuals at www.irs.gov.