Tag Archive for Foreign Tax Credit

Nonrefundable Tax Credits vs. Refundable Tax Credits

A nonrefundable tax credit is a credit that can reduce the amount of an individual’s tax liability to zero, but cannot exceed the total amount of income taxes owed. In other words, you would not receive a tax refund if the credit exceeds the amount of your tax liability. For example, if you have a nonrefundable tax credit of $5,000 and a tax liability of $3,000, the credit will eliminate the tax liability, that is, reduce it to zero. The remaining $2,000 of the credit, however, will be lost, because the IRS will not send you a refund for this amount.

Nonrefundable credits for tax year 2014 include the following:

• Credit for child and dependent care expenses.
• Child tax credit. Read More

Written by | Posted in Tax Tips

Learning The Mechanics of A Foreign Tax Credit!

Income tax systems that tax residents on worldwide income (such as the American tax system) generally offer a foreign tax credit to relieve a potential for double taxation. This credit is usually limited to the income attributable to foreign source income.

What does this mean? If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes.

This means that, if taken as a deduction, foreign income taxes reduce your U.S. taxable income. Or if taken as a credit, foreign income taxes reduce your U.S. tax liability. One can choose whether to take the amount of any qualified foreign taxes paid or accrued during Read More

Written by | Posted in Income Tax

Calculating The Foreign Tax Credit In 3 Easy Steps

The U.S. taxes U.S. persons on all of their income, regardless of its source. This creates a double taxation problem with respect to a U.S. person’s foreign-source income, since foreign countries usually tax all the income earned within their borders, including that derived by U.S. persons.

If the U.S. did nothing to mitigate international double taxation, U.S. companies would be at a competitive disadvantage in overseas markets, since their total tax rate would exceed that of their foreign competitors by the amount of the U.S. tax burden on foreign-source income.

The U.S. mitigates international double taxation by allowing U.S. persons a credit for any Read More

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S Corporations Beat-Out LLCs For Americans Carrying On Business In Canada

As a general rule, U.S. residents are only subject to Canadian tax on business income to the extent that such income is earned via a permanent establishment (“PE”) in Canada(1).

If a U.S. C corporation earns profits that are taxable in Canada, such profits will be subject to federal corporate taxation under Part I of the Income Tax Act (“the Act”) at a rate of 15%, plus, assuming there is a PE in a province, provincial corporate taxation at varying rates. For example, in Ontario the rate is 11.5% and in Alberta the rate is 10%, thereby resulting in combined corporate tax rates of 26.5% and 25%, respectively(2).

In addition, a U.S. corporation earning income from carrying on business in Canada may also be subject to the “branch tax” that is levied under Part XIV of the Act. This tax is quite Read More

Written by | Posted in Corporate • International
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