Tax Credits For Foreign Investments

Many people are discouraged from making foreign investments because they are worried about being dually taxed. If you make an income from a foreign investment you will be taxed by that country and by the Internal Revenue Service. This is one reason why many people are afraid to invest in foreign markets. But, if you claim this income on your yearly tax returns or small business taxes you can be reimbursed for some or sometimes all of the taxes that you were charged by the foreign country in which you made the initial investment. The Internal Revenue Service does this so Americans will not be discouraged from investing their money in foreign markets. With these tax credits for foreign investments, you can make your foreign investment very worthwhile and advantageous.

Filling Out The Proper Paperwork

Whenever you claim income from a foreign company you must claim it on a 1040 form. Just because you were taxed by the foreign country that does not mean that you are not also subject to taxation by the United States government. This form is actually very easy to fill out and it is not very long so you should not avoid it. If you do not file these foreign taxes you will not be eligible for tax credits.

The point of the United States government issuing tax credits for foreign investments is to stimulate such investments. But these taxes only apply to investment in foreign countries. They do no apply to income earned in a foreign country. So, if you physically worked in a foreign country you cannot receive any such tax credits. But, if you made invests in the stock market of a foreign country your earnings will obviously be taxed by that country. But if you fill out the proper tax credit form your could be reimbursed the full amount that the particular country taxed you. In most cases, you will not be credited the full amount, but you can recuperate most of the money you had to pay to the foreign country in investment taxes.

Of course, there are certain countries where you will not be eligible for tax credits. Usually, these will be countries that harbor terrorists. The United State government obviously makes these provisions to prevent Americans putting money into dangerous government hands. For instance, do not expect to receive any tax credits for investing money in the Iran or Iraq markets.

When you file your 1040 form for foreign taxation credit you must declare whether you want to receive your reimbursement through credit or via a deduction of your federal income taxes. It is usually better to take the credit because the value will be greater. But, if work with a tax specialist or accountant when filing your taxes you should ask them to help you determine which would be the most beneficial.

There is obviously a limit to the amount that you can be credited. If you made a lot of money in a year in a foreign country’s stock market you will obviously be taxed a very high amount. But, you will never be credited an amount that is higher than your federal tax liability. That means that the amount of income that you made within the United States will be considered before your reimbursement is determined. You should not be discouraged from investing in foreign markets just because of the taxation issues. Taxation credits for foreign investments are more commonly distributed than ever. They can help you recuperate much of the money you were taxed.