What is the taxation of foreign profits?

In North Carolina, foreign profits are taxed similarly to domestic profits. The state follows the Internal Revenue Service (IRS) rules for taxation. Generally, foreign profits are taxable if they are considered "effectively connected income" or "ECI." This is income derived from a U.S. trade or business, including income generated from services performed in the U.S. In order for income to be taxable as ECI, it must be paid to a U.S. resident or a nonresident alien lawfully present in the U.S. The taxation of ECI is based on the highest marginal tax rate, which is the rate that applies to the last dollar of taxable income. In North Carolina, the marginal tax rate ranges from 7.0 percent to a maximum rate of 5.5 percent. If the taxpayer’s foreign profits are considered ECI, they are subject to withholding at the highest marginal tax rate. In addition, foreign profits may also be subject to foreign taxes. If the foreign taxes are higher than the U.S. taxes on the same income, then the taxpayer may be able to claim a foreign tax credit to reduce their U.S. tax liability. In order to calculate the foreign tax credit, the taxpayer must determine their foreign source income and the total amount of foreign tax paid. Regardless of the foreign taxes paid, the taxpayer is still liable for U.S. taxes on the income earned. Therefore, it is important to understand all of the rules and regulations when filing taxes in North Carolina and to ensure that you pay the correct amount of taxes on all of your income.

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What is the taxation of foreign profits?

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