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 $104,100 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 $104,100 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 then take a tax credit for any foreign taxes paid.

Option II is also correct because Nancy may be able to exclude up to $104,100 of her foreign earned income for the current year, as long as she meets the qualifications for the foreign earned income exclusion.

Option III is not correct because Nancy's income is still considered U.S. gross income, even if it is earned outside of the U.S.

Nancy Teaches School in a Chinese University