Question

8. Isaac works for a domestic fruit importer and travels often to oversee company operations abroad. Isaac lived overseas to oversee operations in Israel for 2018 and passes all residency tests to be considered a foreign resident. Isaac owes $10,000 in USA Social security tax and Social Security taxes to Israel based on his 2018 income. In 2018 Isaac paid $9,000 of Social Security Tax to Israel in 2018 based on his income. What amounts can Isaac claim on his 2018 return on Form 1116 Foreign Income Tax Credit? $10,000 0 $9,000 $0 O $1,000

Answer 1

The Amount Isaac can claim on his 2018 return on Form 1116 Foreign Income Tax Credit is $9,000.

To claim the credit, you must be an individual, an estate or a trust that paid qualifying taxes to a U.S. possession or foreign country.If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to US tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes.

Your foreign taxes will count for the purposes of the foreign tax credit if they were paid on allowable income. The amount of credit that you claim can’t be more than the amount of tax you pay on foreign earned income.Generally speaking, taxpayers must pass the following four criteria in order to qualify to claim the foreign tax credit:

1. You must have incurred or paid a foreign tax liability.
2. The tax must be assessed on income.
3. The tax must be imposed on you as an individual.
4. The tax must have originated legally in a foreign country.

Several types of tax payments are not eligible for the foreign tax credit.

• Refundable taxes.
• Any tax that provides a subsidy to you or a relative.
• Taxes you could have legally avoided paying.
• Taxes accrued to or paid to governments that are not recognized by the United States.
• Tax payments to governments that have been designated as in support of terrorism.

So Isaac is eligible for a foreign tax credit of $9,000 he paid as Social Security Tax on his income in Israel in 2018.