As globalization continues to thrive, more and more individuals and businesses are finding themselves with foreign income that needs to be reported for US tax purposes. If you are one of those individuals or businesses, it’s important to understand the basics of US taxation of foreign income.

First and foremost, it’s important to understand that the US taxes its citizens and residents on their worldwide income, regardless of where that income was earned. This means that if you are a US citizen or resident and you earn income from a foreign source, that income is subject to US taxation.

The US tax system allows for foreign tax credits to be applied to the foreign income that is subject to US taxation. This means that if you pay foreign taxes on your foreign income, you may be able to reduce your US tax liability by claiming a credit for those foreign taxes.

It’s also important to note that there are certain reporting requirements that come with foreign income. The Foreign Account Tax Compliance Act (FATCA) requires US citizens and residents to report foreign financial accounts that exceed certain thresholds. Additionally, the Report of Foreign Bank and Financial Accounts (FBAR) requires the reporting of foreign bank accounts that exceed $10,000 at any point during the year.

If you fail to report your foreign income or foreign financial accounts, you may be subject to penalties and potential criminal charges.

Navigating the US taxation of foreign income can be complex, so it’s important to seek the guidance of a qualified tax professional. At JTT Accounting, our team of experienced US tax accountants can help ensure that your foreign income is properly reported and that you take advantage of all available foreign tax credits. Contact us today to learn more about our US Tax Accounting services.