Question

Subject: Foreign Source Income

Norah Johns has foreign source income of $30,000 during the current year. As the
foreign jurisdiction withholds 25 percent of such income, she only receives $22,500.
She has other income such that this foreign source income will be taxed at a marginal
federal tax rate of 29 percent. Determine the amount by which this foreign income
would increase Norah’s Taxable Income and federal Tax Payable, assuming that the
foreign source income (1) is non-business income and (2) is business income

Answer 1

Explanation:

To determine the amount by which Norah’s taxable income and federal tax payable would increase, we need to calculate the following:

The amount of foreign source income that will be included in Norah’s taxable income.

The federal tax payable on the foreign source income.

For non-business income:

The amount of foreign source income that will be included in Norah’s taxable income is $30,000.

The federal tax payable on the foreign source income is $6,525.

For business income:

The amount of foreign source income that will be included in Norah’s taxable income is $30,000.

The federal tax payable on the foreign source income is $8,700.