TAX 9869 Lecture 27: 27

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17 Jul 2020
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FTC and FTC limitation
FTC only on foreign sourced income
o Net foreign sourced income (foreign source income- expenses)
* U.S. tax rate= max FTC for year
What happens in the situation where you have $30 of
foreign tax I paid, but i can only use 12.6 this year. [30-
12.6=17.4]
Why are you paying foreign taxes and what type?
You won’t be paying foreign taxes on US sourced
income
What happens with 17.4?
RULE***ON TEST: If you have excess credits (17.4
for the year in excess), those excess credits are first
carried back 1 year, then carried forward 10 years
First CB 1 year and CF 10 years
If this were a 2019 event where you paid $30 of tax
to Japan, and only credit 12.6, we can only take
credit of what we have
$60 of foreign source income * 21%= $12.6 is
maximum i can use. Left w/ 17.4
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You first take it back 1 year, did I have enough
foreign source income in prior year that I can use
that 17.4 in the prior year? Every year, you must do
a sep calculation:
o What is my foreign source income, multiply by
US tax rate, whatever # is, = max amount of
foreign tax credits to take
Prior year, might have earned $1000 of foreign
sourced income, might have more ability to take
FTC in prior year, might’ve been able to use 17.4 in
the prior year
o Can I use in 2020? 2021? etc
Too much foreign tax, can’t use them all = excess
credits
Also possible that I could have earned a lot of foreign
source income, but I don't have enough credits/ I didn’t
pay so much, then I might have excess limitation:
Means I have more foreign source income, and the
ability to use more FTC but just may not have taxes
that I paid but I have the ability (= more limitation)
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