Foreign tax credit (FTC)
A US tax credit that offsets US tax liability for foreign income taxes paid.
Definition
Foreign tax credit (FTC) under IRC § 901 lets US persons (citizens, residents, US-incorporated entities) credit foreign income taxes paid against US tax liability on the same income. Prevents double taxation.
Context
Relevant for US-person LLC owners; not for non-resident foreign owners of US LLCs.
Example
A US-citizen LLC owner living in the UK pays UK tax on income that also flows through to the US LLC for US tax purposes. FTC offsets the US tax with the UK tax paid.
Common pitfalls
- FTC limitations cap the credit at US tax on the same foreign-source income.
- FTC categories (passive, general, etc.) have separate limitations.