Q&A with the Pennsylvania Department of Revenue

For an individual that has foreign taxes on business income, can a deduction be claimed for PA purposes for any foreign taxes paid?

Sep 25, 2014
Q:

For an individual that has foreign taxes on business income (as opposed to investment income, interest / dividends), can a deduction be claimed for PA purposes for any foreign taxes paid, similar to state taxes that can be deducted, now that the foreign tax credit is no longer allowed for PA?

A:

Although a resident credit can no longer be claimed for foreign income taxes, a deduction can still be claimed against business income for all costs and expenses incurred in the conduct of the business. However, a cost/expense deduction cannot be claimed for “Any tax imposed on, or measured by, gross or net earned or unearned income.” 61 Pa. Code § 103.2(c)(4).

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These documents provide a summary of the answers provided by the Department of Revenue to the PICPA Committee on State Taxation at its annual question and answer session. These documents are classified as revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on their specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.