Business Tax Credits

Question 1

What are the provisions of the Foreign Tax Credit?

Answer 1

• Applies when US tax rate exceeds foreign tax rate
• Limited to the lower of foreign tax paid or proportion of US tax allocable to foreign sourced income (US tax x ratio of foreign taxable income to total taxable income)
• Excess carry back 1 year forward 10

Question 2

How else can taxpayers mitigate foreign taxes besides the FTC?

Answer 2

• Taxpayer can claim foreign tax as itemized deduction rather than as credit
• Taxpayer can elect to exclude income earned while a bonafide resident in a foreign country (there for 330 days of 12 consecutive months)

Question 3

What is the General Business Credit? It’s defining characteristics?

Answer 3

• Combination of credits designed to subsidize certain activities
• Each credit is calculated independently but combination subject to overall limit (net regular tax)

Question 4

What is Net Regular Tax Liability?

Answer 4

• Regular tax less personal credits

- Business credit cannot offset all of regular tax if liability exceeds $25,000

Question 5

What is the Work Opportunity Tax Credit?

Answer 5

• Credit calculated on amount of wages paid per eligible employee during first year of employment
• Equal to 40% of qualified wages with maximum credit of $2,400

Question 6

What are some miscellaneous business credits?

Answer 6

• Energy credits (solar and geothermal property)

- Nonbusiness energy credit (energy efficiency)