You can deduct their foreign taxes on Schedule A, like other common deductions, or you can use Form 1116 for a tax credit and subtract the taxes you paid to another country from whatever they owe the IRS.
Both the credit and the deduction are entered in the same place. Here's what you do:
- Make sure you've entered all your foreign income.
- From within your return, search for foreign tax credit and select the Jump to link in the search results.
- Answer Yes to Did you pay foreign taxes in 2019 or have credits to use from a prior year?
- Follow the instructions to get the credit or deduction.
In most cases, taking the credit works out better than the deduction. We'll help you decide which one's best for you when you go through this section.
If you choose to take the credit (most people do), we'll attach Form 1116, Foreign Tax Credit if your situation requires it.
Note: You won't be able to take a credit or deduction for taxes paid (or accrued) on excluded foreign earned income or housing. This is because excluded income and housing aren't taxed in the first place.
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