Jim has foreign income. He earns $26,000 from Country A which taxes the income at a 20 percent rate. He also has income from Country B of $18,000. Country B taxes the $18,000 at a 10 percent rate. His US taxable income is $90,000, which includes the foreign income. His US income tax on all sources of income before credits is $19,000. What is his foreign tax credit?

Question

Quizplus · Accepted Answer

Jim's foreign tax credit is calculated based on the taxes paid to foreign countries. He pays $5,200 (20% of $26,000) in Country A and $1,800 (10% of $18,000) in Country B, totaling $7,000. This amount can be credited against his US tax liability, assuming it does not exceed the limit based on his US tax liability attributable to foreign income.

Jim Has Foreign Income