Suppose you are a citizen of the United States with foreign-source income.In the foreign country the tax rate is 40 percent and your U.S.rate is 30 percent.For every $10,000 of foreign-source income you will

Question

Quizplus · Accepted Answer

As a U.S. citizen with foreign-source income, you may be eligible for a foreign tax credit. The foreign tax credit is intended to prevent double taxation of the same income by allowing you to offset your U.S. tax liability with taxes paid to a foreign country. In this case, if you have $10,000 of foreign-source income and are subject to a 40% tax rate in the foreign country, you would pay $4,000 in foreign taxes. If your U.S. tax rate is 30%, your U.S. tax liability on the $10,000 of foreign-source income would be $3,000. Since you can claim a foreign tax credit for the $4,000 of foreign taxes paid, your U.S. tax liability would be reduced by that amount. Therefore, the tax credit you would receive is $3,000.

Suppose You Are a Citizen of the United States with Foreign-Source