In: Accounting
USA Taxable Income = $1,400,000
Foreign source income = $1,600,000
Foreign taxes paid = $610,000 (600,000 + 10,000)
US tax rate = 21%
Worldwide taxable income = $3,000,000 (1,400,000 + 1,600,000)
Pre-credit US tax = $630,000 (3,000,000 * 21%)
Foreign source taxable income = $1,600,000
Limitation = Pre-credit US tax * Foreign source taxable income/Worldwide taxable income
= 630,000 * 1,600,000/3,000,000
= $336,000
Credit = lesser of creditable taxes ($610,000) or the limitation ($336,000)
= $336,000
Foreign tax credit = $336,000
Amount of US tax after credit = $294,000 (630,000 - 336,000)