Question

Present a proposal to the client as to how to reduce the U.S. tax impact from income received from outside the U.S. Provide details to support your proposal.
Use at least two (2) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources.

Answer 1

A person who is a resident of USA or a green card holder has to file income tax return and pay taxes on the income earned in US above the threshold limit. There are to methods to reducet the tax impact:

• Foreign Earned Income Exclusion (FEIE): In this, a certain amount of foreign earned income is deducted from the US tax. For 2017, rate is $ 102,100. Example, a person earned $ 120,000 then he can deduct $ 102,100 leaving $ 17,900 taxable in USA. The exclusion applies only to foreign earned income. Other income, such as pensions, interest, dividends, capital gains, US-sourced income, etc., cannot be excluded with the FEIE
• Foreign Tax Credit: In this method, we deduct the tax paid in the foreign country from the tax payable in USA. In other words, one can claim a FTC for taxes paid in foreign on the same income which is also been taxed in USA.

As a tax planning tool, If ones foreign earned income was less than $102,100 use the FEIE to reduce US tax on this income to zero. However, if foreign income was more than $102,100 use FTC method.

***qtn has been answered as per my knowledge of law. you can cite resource of any tax books in your school library***