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There is a foreign tax credit that you will take, and it is calculated using a formula
Your foreign tax credit cannot be more than your total U.S. tax liability multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources.
So, if 1/2 of your income was from foreign sources, you would take a credit of $10,000 which is 1/2 of your brazilXXXXX XXXXXability
Can you explain? I am confused.
My income is all USA based. I'm talking about foreign taxes paid in Brazil if I happened to live there.
Okay. If the income is 100% US Sourced, you would have to pay the full tax to the US - there would not be a foreign tax credit
But, you can deduct the taxes as an itemized deduction
As a deduction, if I was in the 35% bracket, then I would only save on the foreign taxes paid by 35%, right?
That would be correct, yes
The reason the credit doesn't work is because you can only write off the fraction that is attributed to foreign income
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