American citizens must pay US taxes on their worldwide income.
There are three possibilities to deal with foreign earned income:
Let’s discuss the Foreign Tax Credit.
The credit was allowed by Congress to reduce the effect of double taxation on income earned abroad.
Taking Foreign Tax Credit will reduce your tax liability dollar for dollar.
Any unused amount of credit can carry back one year and forward up to 10 years.
For example, you paid $10,000 in taxes abroad. Using the Foreign Tax Credit option, you can reduce your US Federal taxes by $10,000 assuming that the maximum amount of tax that may be credited is more than $10,000. NYS taxes are not affected.
New York State does not offer a foreign tax credit or a foreign income tax itemized deduction for any other countries.
Make sure your tax accountant reviews all three methods to determine what option will benefit you the most.
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