Question

King Street Corporation has a pre-credit U.S. tax of $119,000 on $514,000 of taxable income. The company has $220,000 of foreign source taxable income and paid $74,000 of income taxes to the Italian government on this income. All of the foreign source income is treated as foreign branch income for foreign tax credit purposes. Calculate the company's foreign tax credit on its tax return will be: (Do not round intermediate calculations. Round your answer to nearest whole dollar amount.)

Answer 1

King Street Corporation

The company's foreign tax credit on its tax return will be:

= $66,000.

Step-by-step explanation:

a) Data and Calculations:

Pre-credit U.S. tax = $119,000

Taxable income = $514,000

Foreign source taxable income = $220,000

Foreign income taxes paid = $74,000

U.S income tax on the foreign taxable income = $66,000 ($220,000 * 30%)

b) The foreign tax credit is equal to the lesser of the foreign income taxes paid to the foreign government or the income tax payable on the foreign source taxable income.