What is the Foreign Tax Credit intended for?

What is the Foreign Tax Credit intended for?

• A. To encourage foreign investments
• B. To avoid double taxation on foreign income
• C. To support domestic companies
• D. To regulate international trade

Answer: (B)

The Foreign Tax Credit is designed specifically to avoid double taxation on income that a taxpayer earns abroad. When U.S. citizens or residents receive income from foreign sources, they may be subject to taxation both by the foreign country where the income is generated and by the United States on their worldwide income. The Foreign Tax Credit allows taxpayers to reduce their U.S. tax liability by the amount of foreign taxes that they have already paid on that income. This system ensures that individuals do not have to pay tax on the same income in both jurisdictions, effectively alleviating the financial burden of potential double taxation and promoting fairness in the taxation of international earnings. The other answer choices address concepts that are not the primary focus of the Foreign Tax Credit. Encouraging foreign investments, supporting domestic companies, and regulating international trade are important economic considerations but do not directly relate to the purpose of the Foreign Tax Credit itself.

The Foreign Tax Credit is designed specifically to avoid double taxation on income that a taxpayer earns abroad. When U.S. citizens or residents receive income from foreign sources, they may be subject to taxation both by the foreign country where the income is generated and by the United States on their worldwide income. The Foreign Tax Credit allows taxpayers to reduce their U.S. tax liability by the amount of foreign taxes that they have already paid on that income. This system ensures that individuals do not have to pay tax on the same income in both jurisdictions, effectively alleviating the financial burden of potential double taxation and promoting fairness in the taxation of international earnings.

The other answer choices address concepts that are not the primary focus of the Foreign Tax Credit. Encouraging foreign investments, supporting domestic companies, and regulating international trade are important economic considerations but do not directly relate to the purpose of the Foreign Tax Credit itself.