1. Jason, a single parent, lives in an apartment with his three minor children, whom he supports. Jason earned $27,400 during 2013, paid $800 in qualified moving expenses during 2013, and uses the standard deduction. Calculate any amount, if any, of Jason's earned income credit.
2. 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?
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?
3. Blue Horizons Inc., a U.S. corporation, is a manufacturing concern that sells most of its products in the United States. It also does some business in the European Union through various branches. During the current year, Blue Horizons has taxable income of $700,000, of which $500,000 is U.S.-sourced and $200,000 is foreign-sourced. Foreign income taxes paid amounted to $45,000. Blue Horizon's U.S. income tax liability is $238,000. What is its U.S. income tax liability net of the allowable foreign tax credit?