Taxpayer Q has net taxable income of $30,000 from Country Y which imposes a 40 percent income tax. In addition to the income from Country Y, taxpayer Q has net taxable income from US sources of $120,000, and US tax liability, before the foreign tax credit, of $30,290. What is the amount of Q's foreign tax credit?

Question

Quizplus · Accepted Answer

The foreign tax credit is limited to the lesser of the foreign taxes paid ($30,000 * 40% = $12,000) or the proportionate amount of US tax liability attributable to foreign income. The proportionate amount is ($30,000 / $150,000) * $30,290 = $6,058. Thus, the foreign tax credit is $6,058.

Taxpayer Q Has Net Taxable Income of $30,000 from Country