How does taxation of foreign dividends work?

Foreign dividends are a type of income earned from investments in international stocks, bonds, or other assets. The taxation of foreign dividends works differently in each country. Generally, the foreign company pays the dividend, and then investors are responsible for paying tax on the income in their own country. In South Carolina, foreign income dividend taxation works by using the IRS’s foreign tax credit. This credit allows taxpayers to deduct any taxes already paid on the dividend income to a foreign government from the U.S. taxes owed on the same income. This helps make sure taxpayers are not taxed twice on the same income. When it comes to filing taxes, taxpayers must include any foreign dividend income on their tax return. In the same filing, taxpayers must also include a Form 1116 which tracks all foreign taxes paid. The amount of foreign taxes paid will be used to determine the foreign tax credit, which taxpayers can then deduct from their U.S. taxes owed on the foreign dividend income. For some taxpayers, there might be limitations and exclusions that apply when using the foreign tax credit. Taxpayers should consult with their tax advisors to ensure they are following the proper procedures for filing taxes and claiming the foreign tax credit.

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How does taxation of foreign dividends work?

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