Final answer:
Taxpayers may claim a foreign tax credit or a foreign tax deduction to avoid double taxation on income taxed by the U.S. and another country, with the credit generally providing a greater tax benefit.
Step-by-step explanation:
Instead of claiming the foreign-earned income exclusion, taxpayers may claim a foreign tax credit or a foreign tax deduction for income taxes paid to other countries. This provision is designed to alleviate the double taxation that occurs when income is taxed both by the United States and by the country from which the income is derived. The foreign tax credit is generally more beneficial as it reduces your U.S. tax liability on a dollar-for-dollar basis. However, there are limits and complexities to how much credit can be taken, and it often depends on the type of income and the specific tax treaties in place between the U.S. and other countries. The foreign tax deduction, while simpler, typically results in a smaller reduction of U.S. tax liability as it simply reduces the income subject to U.S. tax.