Business Tax Credits

Question 1

How is the proportion of US tax allocable to foreign source income computed?

Answer 1

US tax x (foreign taxable income / worldwide taxable income).

Question 2

What is the credit limit of foreign tax credit?

Answer 2

Lower of the foreign tax paid or the proportion of US tax allocable to foreign source income.

Question 3

What happens to excess credits?

Answer 3

Carry back 1 yr, forward 10 yrs.

Question 4

Question:
Wordwide taxable income: 300,000.
US source taxable income: 180,000.
US income tax before foreign tax credit: 96,000.
Foreign source taxable income: 120,000.
Foreign income taxes paid on foreign source taxable income: 39,000.
What amount of foreign tax credit may be claimed?

Answer 4

Lower of:

• 39,000
• 96,000 x (120,000/300,000)=38,400.

Therefore, $38,400.

Question 5

General business credit: what is the limit re: regular tax liability amount?

Answer 5

The business credit can’t offset all of the reular tax if the liability exceeds $25,000.

Question 6

General business credit: what happens to unused credit?

Answer 6

Carried back 1 yr, forward 20 yrs.

Question 7

General business credit: what is eligible for research credit and how much? Criteria? What are things that are NOT eligible?

Answer 7

Incremental research expenditures are eligible for a 20% credit.
Research must be conducted within the US.
Not: commercial production, surveys, social science research.

Question 8

General business credit: what is the formula for alternative simplified research credit?

Answer 8

Equal to 14% of the excess of qualified research expenses over 50% of the average research expenses for the last 3 yrs.

Question 9

General business credit: what is WOTC? What is the credit based on? How is the credit computed? Maximum credit? Impact on deduction for wages?

Answer 9

• Work opportunity tax credit - by hiring people from certain category such as veterans.
• Calculated on the amount of wages paid per eligible employee during the first year of employment.
• Credit: 40% of qualified wages.
• Max: $2,400.
• Reduces the deduction for wages.

Question 10

General business credit: how much is small business health care tax credit? Who is eligible employer? Which business type is eligible?

Answer 10

*50% of non-elective health insurance premiums.

• who has less than 25 full-time equivalent employees whose average annual wages is less than a statutory amount (2017: $52,400).
• employer must pay at least 50% of premiums.

*Any type, even sole proprietorship