Assuming that you deal with publicly traded companies, you can find out if you are paying foreign taxes by looking at your brokerage 1099 statement. On my brokerage consolidated 1099 statement, it appears in the 1099-DIV section. The entry simply says on line 6, “Foreign Tax Paid”. To the right should be how much foreign tax you paid. It could also appear on the 1099-INT Line 6.
You can either take a tax credit or an itemized deduction for the foreign taxes paid. Usually, it is more beneficial to take the credit rather than the deduction. But, you may want to work your taxes both ways to see which way benefits you the most. Whichever method you pick, you must treat all of your foreign taxes the same. In other words, if you choose the credit, you must claim the credit for all of the foreign taxes paid. You cannot choose the credit for some and the deduction for others. However, you can switch between the credit and deduction for each tax year.
The foreign tax credit is calculated on IRS Form 1116. Most tax software will handle the calculations for you. You just have to tell the software that you had foreign income and paid foreign income tax. The actual credit should appear on IRS Form 1040, Line 47. If the resulting credit is less than the amount of foreign taxes that you paid, don’t fret. The calculation for the credit involves the ratio of your foreign income to your taxable income, then a multiplication of that ratio by your tax. Then, the lesser of that amount compared to your actual foreign taxes paid is your foreign tax credit.
If the foreign taxes paid are not more than $300 ($600 if married filing jointly) you may be able to take the credit without filling out Form 1116. All of your foreign income must be from interest or dividends, and must have been reported to you on Forms 1099-INT or 1099-DIV.
If you choose to go the itemized deduction route, enter the amount of foreign taxes paid on Schedule A, Line 8 (2012 version of Form).
Remember, if you were entitled to claim a foreign tax credit in 2013, 2014, or 2015 but didn’t claim it, you can still amend the return and claim the refund.
More information about the foreign tax credit can be found in the following IRS documents, Topic 856-Foreign Tax Credit and Credit or Deduction.