topic Foreign tax credit? in Self employed

Foreign tax credit?

flovazquez78 — Mon, 31 Mar 2025 16:41:23 GMT

Hello!
I am ready to do my taxes but I am confused. I am a US citizen living in Italy for the past 2 years. Last year I did my US taxes, paid my federal and state taxes through my employer (W2) and after I did my Italian taxes and paid the balance of what I owed to Italy (their tax bracket is higher)

now in 2024 I am ready to file my US taxes. My federal and state taxes have been withheld through my W2 but I came across this Foreign tax credit… can I take it?
I am unclear

any help is appreciated! Thank you

Re: Foreign tax credit?

AmyC — Mon, 31 Mar 2025 16:54:54 GMT

The foreign tax credit keeps you from paying tax to two countries on the same income- if the country is on good terms, on a list, with the US (no terrorists). Italy is one of them. There is a treaty between US -Italy that can exempt some income or change how it is treated. See United States Income Tax Treaties for other countries.

You want to determine if you have any treaty exempt income. It is reported and then subtracted back out.
You will pay tax to either US or Italy and then claim a foreign credit on the other return for double taxed income. Where do I enter the foreign tax credit (Form 1116) or deduction?
You may qualify to exclude your wages under Foreign Earned Income exclusion. See Do I need to report foreign income? & What are Forms 2555 and 2555-EZ used for?

You can amend a tax return for up to 3 years.

Re: Foreign tax credit?

flovazquez78 — Mon, 31 Mar 2025 17:16:27 GMT

Thank you so much! If Italy already gave me a credit for my us taxes (they tax more) do I still apply the foreign tax credit? This is where I get confused

Re: Foreign tax credit?

DianeW777 — Mon, 31 Mar 2025 17:38:55 GMT

Yes, the US will give you a credit for taxes paid to Italy on the same income because you are a US citizen. The credit will be the lesser of:

Tax paid to Italy, or
Tax the US would have charged on this income.

The Foreign Tax Credit will be calculated based on the numbers you enter. For Italy, you should enter what they actually charged after the US tax credit.

@flovazquez78