Hank is a sales executive who earned $109,500 working for a multinational firm this year.Of the 365 days in this year Hank spent 340 days residing and working in an overseas office and 25 days working in the United States.What amount of Hank's salary will he be allowed to exclude from gross income in the U.S.(rounded to the nearest one-hundred dollars) ?

Question

Quizplus · Accepted Answer

In order to qualify for the foreign earned income exclusion, a taxpayer must meet either the physical presence test or the bona fide residence test. The physical presence test requires the taxpayer to be present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months, whereas the bona fide residence test requires the taxpayer to be a resident in a foreign country for an uninterrupted period that includes the entire tax year.

Since Hank spent 340 days working in an overseas office, he meets the physical presence test and can potentially exclude a portion of his income. To calculate the amount he can exclude, we need to determine the portion of his income that corresponds to the 340 days he worked overseas.

To do this, we can use the following formula:

Excludable income = Total income x (Number of days in foreign country / 365)

Plugging in Hank's numbers, we get:

Excludable income = $109,500 x (340 / 365) 
Excludable income = $101,860.27

Rounded to the nearest hundred dollars, Hank can exclude $90,915 from gross income in the U.S. Therefore, the correct answer is C.

Hank Is a Sales Executive Who Earned $109,500 Working for a Multinational