Foreign Tax Credits

Congress passed legislation authorizing foreign tax credits to relieve a taxpayer of the double tax burden of paying tax on foreign source income to both the United States and a foreign country. Generally, if the foreign tax rate is higher than the U.S. rate, there will be no U.S. tax due on the foreign income. If the foreign tax rate is lower than the U.S. rate, U.S. tax on the foreign income will be limited to the difference between the rates. The foreign tax credit can only reduce U.S. taxes on foreign source income; it cannot reduce U.S. taxes on U.S. source income.

Tax-exempt Organizations and Political Activities

Non-profit groups organized under Section 501(c)(3) of the Internal Revenue Code are prohibited from participating or intervening in any political campaign either in favor of or in opposition to any candidate for public office. Generally, this applies to religious organizations, including churches, charities, and educational institutions.

Partnership Anti-abuse Provisions

The Internal Revenue Service has the authority to disregard the partnership form of an entity if the operations of the business are found to be inconsistent with the intent of the partnership tax statutes and the partnership form is being used for tax-avoidance purposes. According to Treasury Regulations, the intent of the partnership laws is to allow taxpayers to conduct a joint business activity through a flexible economic arrangement without incurring an entity-level tax.

Non-deductible Business Interest

Not all interest is deductible by a business. In general, you are not permitted to deduct interest that must be capitalized under the Internal Revenue Code, that is not really interest, that is personal interest, or that is prohibited under other sections of the tax law.

Self-Employment Taxes

If you work for yourself, you are usually required to pay a self-employment tax, which is a combination of Social Security and Medicare taxes. It is very much like the Social Security and Medicare taxes withheld from the wages of most employees.