Question

"A US citizen owns stock in a Canadian company and receives dividends. The Canadian government withholds 15% of the dividends as a tax. As a result, the investor reports a:

A)reduction in the investor's ordinary income.
B)non-recoverable loss on the investor's U.S. tax return.
C)tax credit on the investor's U.S. tax return.
D)tax credit on the investor's Canadian tax return."

Answer 1

A US citizen who owns stock in a Canadian company and has taxes withheld on dividends can claim a foreign tax credit on their U.S. tax return to prevent double taxation.

Step-by-step explanation:

When a US citizen owns stock in a Canadian company and receives dividends, the Canadian government withholds a portion of those dividends as a tax. Specifically, if the Canadian government withholds 15% of the dividends as a tax, the US investor can report this as a foreign tax credit on their U.S. tax return. Thus, the correct answer is C) a tax credit on the investor's U.S. tax return. This prevents double taxation, as the investor will be credited for taxes paid to a foreign government when they file their taxes in the United States.