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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16547
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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If I live in Brazil and have to pay personal income taxes in

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If I live in Brazil and have to pay personal income taxes in Brazil (they tax worldwide income), then can I deduct this from my tax liability in the USA?

E.g. if in Brazil I pay $20k and my total tax liability in the USA is $30k, would I only pay the difference of $10k in the USA?

MyVirtualCPA :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

MyVirtualCPA :

There is a foreign tax credit that you will take, and it is calculated using a formula

MyVirtualCPA :

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.

MyVirtualCPA :

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

Customer:

Can you explain? I am confused.

Customer:

My income is all USA based. I'm talking about foreign taxes paid in Brazil if I happened to live there.

MyVirtualCPA :

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

MyVirtualCPA :

But, you can deduct the taxes as an itemized deduction

Customer:

As a deduction, if I was in the 35% bracket, then I would only save on the foreign taxes paid by 35%, right?

MyVirtualCPA :

That would be correct, yes

MyVirtualCPA :

The reason the credit doesn't work is because you can only write off the fraction that is attributed to foreign income

Customer:

ok thanks

MyVirtualCPA :

If you would, please rate my response as "excellent" so that I may receive credit for assisting you today

Megan C and 2 other Tax Specialists are ready to help you
Jason

Thank you for your positive rating. Please come back and visit MyVirtualCPA for any of your tax, finance, or social security needs. It was a pleasure working with you today.