Nancy teaches school in a Chinese university. She is a U.S. citizen and has been teaching in China for 5 years. In the current year she will earn $100,000. What are some of Nancy's options for reporting U.S. gross income? I. She may include the foreign earned income in her gross income, calculate her U.S. income tax, and take a tax credit for foreign taxes paid. II. She may exclude up to $99,200 in foreign earned income for the current year. III. She may exclude all of her income because it is earned outside of the U.S.

Question

Quizplus · Accepted Answer

Nancy can either include the foreign earned income in her gross income and take a tax credit for foreign taxes paid (option I) or exclude up to $99,200 of foreign earned income for the current year (option II). She cannot exclude all of her income simply because it is earned outside of the U.S. (option III is incorrect).

Nancy Teaches School in a Chinese University