TAX 9869 Lecture Notes - Lecture 34: Withholding Tax, Tax Rate, Foreign Tax Credit
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Example 1:
A. Is this creditable?
1. Honduran real property tax: NO
2. VAT: not a creditable tax
3. Federal income tax on biz income: yes
4. State income tax: yes
a. Its an income tax
5. Withholding tax: yes
6. Social security tax on earnings: maybe?
. Maybe its creditable
a. Cant say for sure
b. One court case said it wasn't creditable
c. Some said it is on income
B. No, you cannot credit some and deduct some
But taxes that aren't creditable; you can deduct
VAT + real property tax are deductible!
Creditable taxes you have a choice
• Credit for Income tax and deduction for property + VAT
Example 2:
Sole prop = she has a biz
100,000 of TI from Columbia
150,000 of TI from US
50,000 of canadian sourced interest income (reduced tax rate of 5%)
Effective tax rate
• Worldwide TI of 300,000
• Domestic liab = 105,000
• What is her ETR?
• 105,000/300,000=35%
• Pretend no baskets: figure out what FTC is
• 100k columbia = FSI
• 45k = tax
• 50k canada = FSI
• 2500 = tax
• FSI in total - 150k* 35%=52500
• If no such thing as baskets; how much FTC am i allowed to
take? 52500
• How much foreign tax paid in total = 47,500
• How much maximum can she take? (cannot take more than
what you paid!)
• Allowed 52,500 but paid 47,400 so FTC would be 47,500
• Without baskets = 47,500
• How much would Jennifer pay the IRS? 105,000 - 47,500=
57,500 [$105,000= her domestic tax liability]