Questions? Feedback? powered by Olark live chat software

Difference between a foreign tax credit and a deduction

Is the Foreign Tax Credit a Refundable credit?
Is the Foreign Tax Credit a Refundable credit?
March 25, 2014
How to claim foreign tax credit on property income taxes
How to claim foreign tax credit on property income taxes
March 25, 2014
Show all

Difference between a foreign tax credit and a deduction

The tax savings of a credit is greater than the tax savings from a deduction. The foreign tax credit is, plainly, a credit—not a deduction. A credit is a dollar-for-dollar reduction of one’s U.S. income tax. In the context of international taxation, it is a dollar-for-dollar reduction of one’s U.S. income tax by the amount of foreign income tax paid. By contrast, a deduction lowers the amount of your net taxable income. The tax saving from a deduction is the amount of tax that the taxpayer would otherwise have had to pay on the amount that was deducted.