Question

Night Inc., a domestic corporation, earned $300,000 from foreign manufacturing activities on which it paid $36,000 of foreign income taxes. Night's foreign sales income is taxed at a 50% foreign tax rate. What amount of foreign sales income can Night earn without generating any excess FTCs for the current year? Assume a 21% tax rate.

Answer 1

Assume that the foreign subsidiary earns $300,000 before local taxes in its overall tax basket, and pays taxes

Foreign subsidiary income before local taxes                $ 300,000

Foreign income tax at 50%                                            - $150,000

Local tax at 21% - $61,000

Net profit = $89,000

Assuming that the $300000 earning already includes $36000 of foreign tax paid the net profit $125000.

Please free to contact if you have any query.