What is the taxation of foreign profits?

The taxation of foreign profits in New Mexico is determined by whether the foreign income is active or passive income. Active income, such as wages and profits from a business that are earned overseas, is subject to taxation in the country where it was earned. This means that any foreign taxes already paid to the country of origin can be used as a credit on the U.S. tax return. Passive income, such as dividends and interest from foreign sources, is subject to U.S. taxation. This means that any foreign taxes paid on these income sources can be used as a credit on the U.S. tax return, eliminating the need to pay double taxes. In addition, foreign profits earned by individuals and businesses in New Mexico are subject to U.S. taxation. This means that any taxes paid to the foreign country can be used as a credit against the U.S. taxes due. Businesses may also be subject to Controlled Foreign Corporation (CFC) taxation, which requires foreign subsidiaries of U.S. corporations to pay U.S. taxes on their profits. Foreign tax credits can be used to reduce the amount of U.S. taxes due on international income. The credits are typically based on the amount of foreign taxes paid and the amount of U.S. taxes that would have been due on the foreign income. The credits are claimed on Form 1116 of the federal income tax return and are generally limited to the lesser of foreign taxes paid or the U.S. taxes due on the foreign income.

Related FAQs

What are the tax implications of doing business in a foreign country?
How do avoidance of double taxation agreements work?
What are the specific implications of the USA's Foreign Account Tax Compliance Act (FATCA)?
How do governments track and enforce international taxation?
How do governments tax the income of non-residents?
How do governments assess repatriated profits for taxation?
What are the differences between double tax avoidance and tax evasion?
What are the specific regulations associated with cross-border financial transactions?
How do governments assess and collect taxes on the income of non-residents?
How do digital services taxes work?

Related Blog Posts

An Overview of International Tax Law: What You Need to Know - July 31, 2023
Key Principles of International Tax Law - August 7, 2023
Learn About the Basics of Cross-Border Tax Cooperation - August 14, 2023
Understanding the Double Taxation Principle and How It Affects Businesses - August 21, 2023
A Guide to International Tax Planning Strategies - August 28, 2023