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

First, we need to calculate the foreign tax credit limit, which is the lesser of the actual foreign tax paid (in this case, 40% of $30,000 = $12,000) or the US tax liability on the foreign income (in this case, the US tax liability on the total income of $150,000, minus the foreign income of $30,000, equals $120,000, which has a tax liability of $30,290).

Since the US tax liability is lower than the actual foreign tax paid, the foreign tax credit limit is $30,290.

Next, we need to calculate the foreign tax credit itself, which is the lesser of the foreign tax credit limit or the actual foreign tax paid (in this case, $12,000).

Therefore, the foreign tax credit is $6,058 (which is the lesser of $12,000 and $30,290).

The correct answer is A) $6,058.

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