Question

Jimenez Enterprises is incorporated in Arkansas. It generated a $5,000,000 profit on its overseas operations this year. Jimenez paid $1,000,000 in income taxes to various countries on these profits. Jimenez's marginal Federal income tax rate is 21%.

Compute the Jimenez foreign tax credit and carryovers for the year. If an amount is zero, enter "0".

Jimenez's current foreign tax credit is $____. Jimenez's foreign tax credit carryover is $____.

Answer 1

Allowance of Foreign tax credit is the amount of federal income tax ($1,050,000) or income tax paid in a foreign country ($1,000,000), whichever is lower, therefore, the federal income tax is taken as the foreign tax credit.

Percentage of Income Tax paid in Foreign Country=

Income Tax Paid in Foreign Company/ Total Profit Generated=

$1,000,000/$5,000,000×100=20%

Foreign tax credit=

1- Total Profit Earned× Federal Income Tax Rate=

$5,000,000×21/100=$1,050,000

2- Carryover= Income Tax Paid in Foreign Country− Foreign Tax Credit=

$1,000,000−$1,050,000=$0

Answer:

Jimenez's current foreign tax credit is $1,000,000. Jimenez's foreign tax credit carryover is $ 0.