Discuss the tax planning techniques available to a U.S. citizen who is on a foreign job assignment.
What will be an ideal response?
U.S. citizens who are on foreign job assignments can avoid double taxation by electing to take either a foreign tax credit or a foreign-earned income exclusion of $103,900 with respect to income earned while on extended non-U.S. assignments. Generally, the exclusion is chosen if the effective foreign tax rate is less than the effective U.S. tax rate because the foreign tax credit that can be claimed does not equal the gross U.S. tax that is owed on the income. If the foreign tax rate on the earned income exceeds the U.S. tax rate, the exclusion would generally not be elected. Rather, the excess foreign tax credits on earned income are used to offset the U.S. tax owed on other types of foreign income.
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On January 1, Year 1, Charlotte Curtis started Curtis Company as a sole proprietorship with an initial investment of $80,000. During Year 1, the business earned $60,000 in cash revenue and paid $45,000 in cash expenses. During Year 1, Ms. Curtis withdrew $7,000 for her personal use. Required: Using the above information, prepare an income statement, a capital statement, and a balance sheet for the Curtis Company.
What will be an ideal response?