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 $102,100 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

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 $102,100 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.
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Quizplus · Accepted Answer

Option I is correct because Nancy can choose to include her foreign earned income in her gross income and calculate her U.S. income tax. She can also take a tax credit for any foreign taxes paid, which can help reduce her U.S. tax liability.
Option II is also correct because Nancy can choose to exclude up to $102,100 of her foreign earned income for the current year. This exclusion is available to U.S. citizens who meet certain requirements, such as living and working in a foreign country for a certain period of time.
Option III is incorrect because even though Nancy's income is earned outside of the U.S., she is still a U.S. citizen and subject to U.S. tax laws. Therefore, she cannot simply exclude all of her income from her U.S. gross income without claiming any tax benefits.

Nancy Teaches School in a Chinese University