Saginaw Steel Corporation has a precredit U.S. tax of $105,000 on $500,000 of taxable income. Saginaw has $200,000 of foreign source taxable income and paid $60,000 of income taxes to the German government on this income. All of the foreign source income is treated as foreign branch income for foreign tax credit purposes. Saginaw's foreign tax credit on its tax return will be:

Question

Quizplus · Accepted Answer

The foreign tax credit is limited to the lesser of the foreign taxes paid ($60,000) or the U.S. tax on the foreign source income. The U.S. tax on the foreign source income is calculated as ($200,000 / $500,000) * $105,000 = $42,000. Thus, the foreign tax credit is $42,000.

Saginaw Steel Corporation Has a Precredit U