Can an S Corp deduct foreign income taxes?

Foreign taxes paid by an S corporation pass through to shareholders who can elect to treat them as deductions or credits on their individual returns ( Code Sec. 1373). An S corporation is treated as a partnership rather than a corporation.

What are deductions related to foreign earned income?

Deductions to foreign earned income can include moving expenses, other business expenses, or the employer-equivalent portion of self-employment tax paid on self-employed earnings in a foreign country.

What is excluded from the term foreign earned income?

The foreign earned income exclusion is intended to prevent double taxation by excluding income taxed in another country from U.S. taxation. Resident aliens who are citizens or nationals of a country with which the U.S. has an income tax treaty in effect may also qualify.

Can you claim foreign tax credit and foreign earned income exclusion?

While you cannot take the Foreign Earned Income Exclusion and Foreign Tax Credit on the same dollar of income, you can take both in the same year.

Can an S Corp have foreign subsidiaries?

An S corporation can legally own a foreign subsidiary, but the foreign subsidiary cannot achieve QSub status. An S corporation must hold a foreign subsidiary as a C corporation, and a C corporation must pay tax at the corporate rate on its earnings.

Can I deduct foreign tax paid on dividends?

If you claimed a $1,000 foreign tax credit, you could reduce your $2,500 U.S. tax bill on the dividends dollar-for-dollar, to $1,500. If you claimed a tax deduction, that $1,000 of foreign taxes would be used to reduce your dividend income from $10,000 to $9,000.

Are foreign expenses deductible?

Your client may be able to claim deductions for expenses incurred in earning their foreign income. Any expenses claimed must reflect the expenses that would be allowable as a deduction if the foreign income was assessable in Australia and the same record keeping rules apply.

What is the difference between Form 1116 and 2555?

Form 2555 – Foreign Earned Income, used by taxpayers to claim the foreign-earned income exclusion, housing exclusion, and housing deduction. Form 1116 – Foreign Tax Credit, used by taxpayers to claim a credit against U.S. income tax liability for income taxes paid to a foreign jurisdiction.

Can an S corporation have foreign investors?

Yes, while foreign individuals cannot be owners of S Corporations, they most certainly can be owners of an LLC (or a C Corporation or Limited Partnership).