Patrick, age 40 and single, worked all of last year in Spain. His $89,000 salary
ID: 2415432 • Letter: P
Question
Patrick, age 40 and single, worked all of last year in Spain. His $89,000 salary was paid in Euros rather than Dollars. He paid Spanish taxes on the earnings equal to $15,000. Under U.S. tax law, he may choose to either exclude the $80,000 from his income or take a tax credit for $15,000 of foreign taxes paid. Patrick has no other income, and will take the standard deduction.
Required:
What are Patrick's after-tax earnings if he decides to exclude the salary from his income?
What are Patrick's after-tax earnings if he decides to take the credit instead?
Please use tax table for 2015
Explanation / Answer
1 If Patrick decides to exclude the salary from his income Gross Income 89,000.00 ( no tax in USA upto $92900) less : Spanish Tax paid 15,000.00 After Tax earning 74,000.00 If Patrick decides to take standard deduction ; 2 Gross Income 89,000.00 Less Standard dedcutuin in 1040 (6,300.00) Less : Personal exemption (4,000.00) Taxable Income 78,700.00 Tax in 1040 15,469.00 Less Foreign Tax credit Max 10000 (10,000.00) Total Tax payable 5,469.00 So in this case Gross Income 89,000.00 less : Spanish Tax paid 15,000.00 Less: Tax paid in USA 5,469.00 Net After Tax income 68,531.00