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61. Jim has foreign income. He earns $26,000 from Country A which taxes the income at a 20 percent rate. He also has income f

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Answer #1

Given that,

Earns from country A (x) = $26,000

Income Tax rate in country A = 20 percent

Earns from country B (y) = $18,000

Income Tax rate in country B = 10 percent

Jim's US taxable income (I) = $90,000

His US income tax on all sources of income before credits (F) = $19,000

Foreign tax credit :

⇒ Earns from country A × Income Tax rate in country A + Earns from country B × Income Tax rate in country B

= 26,000 × 20% + 18,000 × 10%

= $7000

OR

⇒ (x+y)/I

= (26000+18000)/90000 * 19000

= $9288.8

Therefore, foreign tax credit is lesser of the above, i.e $7000.

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