A credit is allowed for foreign income taxes paid or accrued. The credit is limited for that part of Ough.S. tax due to foreign source income. It is far from refundable, but any excess credit end up being the carried to other years to reduce tax. Debt forgiveness, you see, is treated as taxable income. Why? In the nutshell, if someone gives you money and you should not pay it back, it’s taxable. This is the way have to pay taxes on wages after a job.
Perhaps the reason that debt forgiveness is taxable happens because otherwise, cibai might create an enormous loophole in the tax exchange. In theory, your boss could “lend” cash every 2 weeks, also the end of 12 months they could forgive it and none of it taxable.
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