Acc 421 Taxation Problems

ACC 421 Taxation Problems

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#39: Kim, a U.S. citizen and resident, owns and operates a novelty goods business. During 2013, Kim has taxable income of $100,000, made up of the following: $50,000 from foreign sources and $50,000 from U.S. sources. In calculating taxable income, the standard deduction is used. The income from foreign sources is subject to foreign income taxes of $26,000. For 2013, Kim files a joint return claiming his three children as dependents.
A. Assuming Kim chooses to claim the foreign taxes as an income tax credit, what is his income tax liability for 2013?
My tax bracket identified:
Tax Bracket is 15% on 2013 Tax Rate schedule married filing jointly for income up to $72,500 (US Portion of Income).
Answer:
$100,000+ (5 Personal and dependency exemptions*3900=$19,500) ,500
Overall Limitation: $50000 foreign source taxable income /$119,500*17925 (15%*119,500)
=$7500 foreign tax credit
US Income Tax (15%x119500) =$17925
Less foreign Tax Credit ($7500)
US Income tax payable $10,425.00
B. Recently, Kim has become disenchanted with the location of his business and is considering moving his foreign operation to a different country. Based on his research, if he moves his business to his country of choice, all relevant revenues and costs would remain approximately the same except that the income taxes payable to that country would only be $80,000. Given that all of the foreign income taxes paid are available to offset the U.S. tax liability (whether he operates in a high-tax or a low-tax foreign jurisdiction), what impact will this have on his decision regarding the potential move?
Answer:
$20,000 would be US Income and $80,000 is foreign income =$100,000
$100,000+ (5 Personal and dependency exemptions*3900=$19,500) ,500
Overall Limitation: $80000 foreign source taxable income /$119,500*17925 (15%*119,500)
=$12000 foreign tax credit
US Income Tax...