Question

Required Information The following information applies to the questions displayed below] Fred currently earns $9,500 per month. Fred has been offered the chance to transfer for three to five years to an overseas affillate. His employer Is willing to pay Fred $10,500 per month if he accepts the assignment. Assume that the maximum forelgn-earned income exclusion for next year is $104,100 a-1. How much U.S. gross Income will Fred report If he accepts the assignment abroad on January 1of next year and works overseas for the entire year? Income reported

Answer 1

Answer -

a.1 Answer -

Income reported

$21900

Explanation:

Fred will earn $126000 by going abroad, but he can exclude $104100 under the foreign earned income exclusion.

Hence, Fred will report gross income of $21900 ($126000 - $104100) from the salary earned.

a.2 Answer -

Amount to be excluded

$1360

Explanation:

Since Fred meets the requirements for the foreign-earned income exclusion, he may also exclude the employer-provided housing costs that exceed

= $16640 (16% * $104100) Or

Up to a maximum exclusion of

= $14574 (14% * $104100)

Thus, Fred may exclude $2128 (the lesser of (a) ($18000 - $16640 = $1360) or (b) $14575).

Thus, Fred includes $16640 ($18,000 - $1360 exclusion) of the employer-provided housing in gross income.

And exclusion = $1360

b. Answer -

Income reported

$120000

Explanation:

Fred will earn $63000 ($10500 * 6 months) during the first half of the year and $57000 ($9500 * 6 months) during the second half of the year.

However, because he is not physically abroad for consecutive 12 months period.

Fred will not be able to claim any foreign earned income exclusion. So, he will report $120000 ($63000 + $57000) of gross income next year.