What is the Foreign Tax Credit?

One of the tools the IRS has in place to reduce double taxation is the Foreign Tax Credit. The Foreign Tax Credit provides US citizens – not just expats – with a dollar-for-dollar tax credit on your US taxes for taxes paid to a foreign government.

For example, if you owed the IRS $2,000 in taxes but paid the Hong Kong government $500 in taxes, you could deduct the $500 from the $2,000 owed to the IRS and pay $1,500. This is applied to a US tax return by attaching Form 1116.