Foreign Tax Credit

Time Requirement: 60 minutes

Purpose

This lesson teaches students how to assist U.S. citizens and resident aliens who may be eligible for the foreign tax credit. Students will learn how to use Form 1116 to compute the credit, which is reported on Form 1040.

Objectives

• Determine which taxes and types of foreign income are eligible for the foreign tax credit
• Compute the credit accurately using Form 1116
• Calculate and report the foreign tax credit as a nonrefundable credit

Teaching the Lesson

Refer to the Lesson Plan for helpful instructor notes, visual aids, TaxSlayer® demos, and Internet links. Prompt students to share what they know about this credit.

• What is the purpose of the foreign tax credit?
• When is Form 1116 required to claim the credit?
• What is the difference between passive and general income, and why is it important?

Refer students who may want to work independently to Publication 4491, Foreign Tax Credit.

Key References

This lesson refers to the following publications and forms:

• Publication 4012, Nonrefundable Credits tab
• L&LT, Foreign Tax Credit Lesson

All references to materials can be found by clicking Job Aids and Media buttons. There are also links to helpful tools that can be found on the irs.gov public portal. For this lesson the student can link to the following sites for additional help:

• Frequently Asked Questions (FAQs) About International Individual Tax Matters
• Tax Topics - Foreign Tax Credit
• What Foreign Taxes Qualify For The Foreign Tax Credit?
• Foreign Tax Credit - How To Figure The Credit
• Foreign Tax Credit - Choosing To Take Credit or Deduction
• United States Income Tax Treaties - A to Z
• Foreign Tax Credit Compliance Tips

TaxSlayer® Demos and Tutorials

It is recommended to go to the Practice Lab and access the latest TaxSlayer tutorial for this lesson. The TaxSlayer tutorials can be found by going to the Practice Lab and clicking on the link for TaxSlayer IRS training.

Publication 4012 , Nonrefundable Credits tab, includes how to enter the foreign tax credit in TaxSlayer.