Question

Zenon Inc. has the following taxable income: U.S. source income $ 1,900,000 Foreign source income 240,000 Taxable income $ 2,140,000 Zenon paid $33,000 foreign income tax. Compute its U.S. income tax, assuming the foreign source income does not qualify as FDII.

Answer 1

Answer:

The income tax is $81,600

Explanation:

In this question, we are asked to compute the foreign tax income for Zenon Inc assuming the foreign source income does not qualify as FDII

To compute this, we employ a mathematical approach.

Mathematically,

The income paid by Zenon Inc = Foreign credit Tax limitation * Foreign source income/taxable income

We identify the parameters in the equation as follows;

Foreign tax limitation = Taxable income * tax rate

Where the tax rate for the US is 34% or simply 0.34

Foreign tax limitation = 0.34 * 2,140,000 = $727,600

Foreign source income = $240,000

Taxable income = $2,140,000

Income paid = 727,600 * 240,000/2,140,000 = $81,600