Strategy to Optimize Foreign Tax Credits - Assignment Example

Attempt to use laps between foreign tax law and the U.S. to duplicate tax benefits effectively. The treasury should address this lop holes by use of existing laws and by the legislation of bylaws to curb this practice. (Albrecht, Albrecht, 2008).
A U.S. citizen can reduce or minimize U.S. tax obligations by claiming tax credits on foreign taxes on income. This is subjected to the following condition; the maximum tax credit payable must not exceed the amount of tax that would be payable if this income tax was taxed using the domestic income tax rate. Any excess tax paid to a foreign county is not claimable.
For example, if a U.S citizen X earns $9,000 foreign annual income, this is the only taxable income for X. And x had paid 800 as a tax on this income. His domestic tax liability will be 900 less 800 tax credit.
The argument for the Elimination of tax exemptions for U.S Taxpayers on income generated from abroad

The government should maximize its tax revenue by not allowing any tax credit to its taxpayers working abroad. This will seal lop holes that currently exist in this legislation.
For example, if a U.S citizen X earns $9,000 foreign annual income, this is the only taxable income for X. And x had paid 800 as a tax on this income. His domestic tax liability will be 900 less 800 tax credit. However, if this tax credit is eliminated; the government will earn an additional 800.
The argument against the Elimination of tax exemptions for U.S Taxpayers on income generated from abroad
This will lead to double taxation of taxpayers hence exploitation by the government thus discouraging foreign employment. I.e. X (above illustration) will pay 1700 as tax. Read More