Unit 6 - Chapter 6 Step 1 Step 2 Compute the limitation...

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Chapter 6 Step 1 Step 2 - Compute the limitation Step 3 – Example: US Co 200 US Inc %35 = $70 100 FSI %45 = $45 300 WWIT %35 = $105 Limitation 100/300 x 105 = $35 Foreign Tax Return US Tax Return TI 100 300 F Rate 45 35 F Tax 45 US Tax 105 FTC (35) US Tax 70 Total Tax US Tax 70 Frg Tax 45 Total tax paid 115 Cross Crediting Separate category of income (1987) Passive income is usually tax lower, interest, dividends, Active (general) income is usually get tax at a higher The same formula in each basket as limitation Prevent to cross crediting, not allowed high tax, Passive= 954(c) – dividend, interest, royalties, rent, annuities General category; is other than passive Corp uses foreign sources capital gain to get a benefit. Then limitation increases and this is an another benefit. What they do? To prevent double tax benefit, a foreign source capital gain is excluded from the numerator to the extent that is offset us source capital losses. Individual get a foreign tax credit. Is subject to lower rate, credit Us tax and average rate is used to credit, and lower 35%.
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