Alan, a U.S. citizen, works in Germany and earns $70,000, paying $20,000 in German taxes. His U.S. income is $40,000 and he pays $8,000 in U.S. taxes. His U.S. taxes on his worldwide income are $22,500. What is Alan's excess foreign tax credit? Assume he does not qualify for the foreign-earned income exclusion.
A)$0
B)$5,682
C)$8,000
D)none of the above

Question

Quizplus · Accepted Answer

To calculate the excess foreign tax credit, we need to first calculate the amount of foreign tax credit that Alan can claim. Since his U.S. tax liability on his worldwide income is $22,500, and he paid $20,000 in German taxes, he can claim a foreign tax credit of $20,000. However, his U.S. tax liability on his U.S. income of $40,000 is only $8,000, so he has $12,500 of unused foreign tax credits ($20,000 - $8,000). This is his excess foreign tax credit. Therefore, the answer is B) $5,682, which is the amount of his excess foreign tax credit after adding it to his U.S. tax liability on his U.S. income ($12,500 + $8,000 = $20,500, but he can only claim up to the U.S. tax liability on his U.S. income, which is $8,000).

Alan, a US