San Carlos Corporation, a U.S. multinational, had pretax U.S. source income and foreign source income as follows: $\begin{array}{lr}
\text {U. S. source income }&\$400,000\
\text {Foreign source income-Country $ w $ }&300,000\
\text { Total}&\$700,000\
\end{array}$
San Carlos paid $60,000 income tax to Country W. Assume San Carlos' foreign source income does not qualify as foreign-derived intangible income. Calculate San Carlos' tax savings if it takes a foreign tax credit rather than deducting this tax.

Question

San Carlos Corporation, a U.S. multinational, had pretax U.S. source income and foreign source income as follows: $\begin{array}{lr}
\text {U. S. source income }&\$400,000\
\text {Foreign source income-Country $ w $ }&300,000\
\text { Total}&\$700,000\
\end{array}$
 San Carlos paid $60,000 income tax to Country W. Assume San Carlos' foreign source income does not qualify as foreign-derived intangible income. Calculate San Carlos' tax savings if it takes a foreign tax credit rather than deducting this tax.

Quizplus · Accepted Answer

San Carlos Corporation's tax savings from taking a foreign tax credit can be calculated by comparing the tax credit to the tax deduction benefit. Assuming a U.S. corporate tax rate of 21%, the tax deduction benefit would be $60,000 (the foreign tax paid) multiplied by 21%, which equals $12,600. The foreign tax credit directly reduces the U.S. tax liability by the full $60,000 paid to Country W. Therefore, the tax savings from taking the credit over the deduction is $60,000 - $12,600 = $47,400.

San Carlos Corporation, a U San Carlos Paid $60,000 Income Tax to Country W