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 $100,300 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 $100,300 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

Nancy has two options for reporting her U.S. gross income:

I. She may choose to include her foreign earned income in her gross income and calculate her U.S. income tax based on the total amount. However, she can also take a tax credit for foreign taxes paid to avoid double taxation.

II. Under the foreign earned income exclusion, Nancy can exclude up to $100,300 (in 2021) in foreign earned income from her gross income. This option would likely result in a lower U.S. income tax liability.

Option III is not correct because Nancy cannot exclude all of her income earned outside of the U.S. She can only exclude up to the maximum limit allowed under the foreign earned income exclusion.

Nancy Teaches School in a Chinese University