Question

Krefeld, Inc. had the following taxable income:

U.S. source income	$	1,435,000
Foreign source income		850,000
Taxable income	$	2,285,000

Krefeld, Inc. paid $315,000 foreign income tax.

Requirements: Determine the following:

(1) U.S. Tax before Credits:

(2) Foreign Tax Credit:

(3) U.S. Tax Liability after Credits:

Answer 1

Answer -

(1) U.S. Tax before Credits - $776,900

(2) Foreign Tax Credit - $289,000

(3) U.S. Tax Liability after Credits - $487,900

Explanation -

Calculation of the Krefeld's U.S Tax Liability:

U.S. Source income	$1,435,000
Foreign Source income	$850,000
Total income subject to U.S. tax	$2,285,000
U.S. tax before credits ($2,285,000 * 0.34)	$776,900
Credit limited to the lesser of ($850,000/2,285,000 * $776,900 = $289,000 Or $315,000)	($289,000)
Net U.S. Tax liability	$487,900

Therefore, the U.S Tax Liability is $487,900.

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