Carlotta has $50,000 foreign-source income and $150,000 total worldwide income.Her U.S.tax on her worldwide income is $30,175,and she paid foreign taxes of $16,000.What is the Carlotta's foreign tax credit?
A)$5,942
B)$10,058
C)$16,000
D)$5,333

Question

Quizplus · Accepted Answer

Carlotta's foreign tax credit can be calculated using Form 1116. 
First, we need to calculate the proportion of her total income that is foreign-source income:
Foreign-source income / Total worldwide income = 50,000 / 150,000 = 1/3
Next, we need to calculate the limit on the foreign tax credit:
U.S. tax on worldwide income x (Foreign-source income / Total worldwide income) = 30,175 x (1/3) = 10,058
Finally, we compare the limit to the amount of foreign taxes paid:
Foreign tax credit = lesser of limit or foreign taxes paid = lesser of 10,058 or 16,000 = 10,058.
Therefore, the answer is B) $10,058.

Carlotta Has $50,000 Foreign-Source Income and $150,000 Total Worldwide Income