ExpertMedium1 markMultiple Choice
CPA · Question 35 · Area 3: Individual Taxation
Taxpayer has ,000 of U.S. source income and ,000 of foreign source income. Total taxable income is ,000. The U.S. tax liability before credits is ,000. The taxpayer paid ,000 in foreign taxes. What is the Foreign Tax Credit limitation?
Taxpayer has ,000 of U.S. source income and ,000 of foreign source income. Total taxable income is ,000. The U.S. tax liability before credits is ,000. The taxpayer paid ,000 in foreign taxes. What is the Foreign Tax Credit limitation?
Answer options:
A.
,000
B.
,000
C.
,000
D.
,000
How to approach this question
Formula: (Foreign Income / Total Income) x US Tax = Limit. Compare Limit vs Actual Foreign Tax Paid. Take the lower.
Full Answer
B.,000✓ Correct
,000
The Foreign Tax Credit is limited to the proportion of U.S. tax attributable to foreign source income. Limit = (,000 / ,000) * ,000 = ,000.
Common mistakes
Taking the full foreign tax paid without checking the limit.
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