Foreign Tax Deduction refers to a provision in the U.S. tax code that allows taxpayers to deduct certain foreign taxes paid or accrued during the tax year from their taxable income.
This deduction is intended to alleviate the burden of double taxation, where income is taxed both in the foreign country and in the U.S. It typically applies to taxes on income, such as foreign income taxes, and can be claimed by individual taxpayers, corporations, and other entities.
For example, if a U.S. taxpayer earns income in a foreign country and pays $1,000 in income taxes to that country, they may qualify to deduct that amount from their U.S. taxable income, thus potentially reducing their overall tax liability. It’s important to note that taxpayers must choose between the foreign tax deduction and the foreign tax credit, as they cannot claim both for the same taxes.
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