Question

Required information [The following information applies to the questions displayed below.] Fred currently earns $9,000 per month. Fred has been offered the chance to transfer for three to five years to an overseas affiliate. His employer is willing to pay Fred $10,000 per month if he accepts the assignment. Assume that the maximum foreign-earned income exclusion for next year is $107,600. C-1. Suppose that Fred's employer offers Fred a permanent overseas assignment beginning on March 1 of next year. How much U.S. gross income will Fred report next year if he accepts the permanent assignment abroad? Assume that Fred will be abroad for 305 days out of 365 days next year. (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) Income reported

Answer 1

Answer:

Solution: C-1)

Calculation of U.S Gross Income
Particulars	Amount ($)
Current year earnings ($ 9000 * 2 months)	18,000
Earnings Per month ($ 10,000 * 10 months)	100,000
Total Earnings	118,000
Less: Partial Foreign Earnings ($ 1,07,600*305/365)	89,912
Gross Income	28,088

Solution: C-1A)

Calculation of the Amount to be Excluded
Particulars	Amount ($)
Cost must be exceed ($ 107,600 * 305 /365) * 16%	14,386
Minimum Exclusion ($ 107,600 * 305 /365) * 14%	12,588
Fred may exclude the lower of
a) ($ 20,000 - $ 14,386) = $ 5,614	5,614
b) $ 12,588
Included in Gross Income ($ 20,000 - $ 5,614)	14,386