Il giorno martedì 2 gennaio 2018 15:46:30 UTC-5, ira smilovitz ha scritto:
> Given that, it's possible, but doesn't seem likely, that you would have 90% US >sourced earned income (unless you are using "earned" loosely and not meaning >compensation income). In any event, if the income is taxed by the foreign >country, it should, in general, be part of the foreign credit calculation. >Complicating this, of course, will be the existence of a tax treaty between the >two countries. Tax treaties can create whatever tax scheme the two participating >countries agree to establish.
Thank you both for the answers.
To clarify:
- the country is Italy (and I am quite sure they tax the worldwide income)
- the individual (me) is a US resident for tax purposes and earns 100% of the earned income from an italian company (that's sufficient for Italy to tax 100% of it) performing job duties in US (that's sufficient for US to tax 100% of it).
What the CPA does is to look at the physical presence here and there each year, let's say 90% and 10%, and then says that the foreign earned income is the 10% of the total. Then, as I said, he uses only the 10% of the tax paid there for the calculation.
Form 1116 instructions say:
You can take a credit for income, war
profits, and excess profits taxes paid or
accrued during your tax year to any
foreign country or U.S. possession, or
any political subdivision (for example,
city, state, or province) of the country or
possession.
That to me does not seem to require to report only the foreign tax paid on the foreign income.
About the tax treaty: yes, there is one against double taxation, and form 1116 specify that if you received a refund in the foreign country for the tax paid (for example as effect of the tax treaty) you should amend the US tax return, etc, but in the case the individual did not used the tax treaty in the tax return of the foreign country, I think he should be able to use 100% of the foreign tax paid in the calculation of the credit.
thanks