Foreign Tax Credit: How to Get Money Back

Investing abroad can make you rich. But there are also traps for those who aren't familiar with the way international investing works. The foreign tax credit is one way that investors can get back money they have to pay to foreign governments in tax for their investment income.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at how the foreign tax credit works. Dan notes that many countries have tax treaties that make owning foreign stocks similar to owning U.S. stocks for tax purposes. But other countries don't have those provisions in a tax treaty, and so shareholders in France's Total (NYSE: TOT  ) , Spain's Telefonica (NYSE: TEF  ) , and other dividend-paying stocks around the world need to know what they've paid and how to get it back. Dan points out that the IRS has made it easier to claim a foreign tax credit lately, no longer requiring Form 1116 if your tax-reporting 1099s from your broker include foreign tax amounts and meet all the necessary requirements. Dan concludes that even though foreign investing can be lucrative, it pays to know these rules to get the maximum tax break.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 17, 2014, at 9:16 AM, danpayer wrote:

    Can you get foreign tax credits if stock is held in retirement account (Traditional or Roth IRA)?

  • Report this Comment On March 17, 2014, at 5:12 PM, Gottamouthoff wrote:

    I own 100 shares of Total in my IRA bought last year. They withhold 30% of the dividend. Can I get this back. or will it just be a cost of owning this stock. My broker advised of a transaction tax but not of the withholding.

  • Report this Comment On March 23, 2014, at 8:15 PM, LazyCapitalist wrote:

    Since you aren't currently paying taxes on stocks in your IRA, you can't claim the foreign tax credit. If you want to claim a foreign tax credit, you need to have those stocks in a taxable account. If you keep those stocks in your IRA, the withholding tax on dividends just lost money.

  • Report this Comment On June 20, 2014, at 3:56 PM, foolishmagician wrote:

    I also have Total stock in my traditional IRA but plan to take money out of my account and so will pay taxes. Can I claim the foreign tax credit if I'm paying taxes on my IRA withdrawals?

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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