I earned dividends on money in a foreign investment. How should I report this?

Americans are taxed on their worldwide income so these dividends must be reported and it will be taxable. If foreign taxes were paid on this income the amount that was paid can be offset against US Federal taxes using the foreign tax credit. This tax credit prevents double taxation.

Example: An American citizen invests in a Canadian company. The American citizen receives a year-end statement detailing the dividends he earned and the Canadian taxes remitted to the Canadian Government. The American citizen must report the dividends earned on his tax return, but he can offset some of these taxes using the foreign tax credit.