Question

Fred currently earns $9,000 per month. Fred has been offered the chance to transfer for three to five years to an overseas affiliate. His employer is willing to pay Fred $10,000 per month if he accepts the assignment. Assume that the maximum foreign-earned income exclusion for next year is $104,100.

a-1. How much U.S. gross income will Fred report if he accepts the assignment abroad on January 1 of next year and works overseas for the entire year?

a-2. If Fred’s employer also provides him free housing abroad (cost of $20,000), how much of the $20,000 is excludable from Fred’s income?

b. Suppose that Fred's employer has offered Fred a six-month overseas assignment beginning on January 1 of next year. How much U.S. gross income will Fred report next year if he accepts the six-month assignment abroad and returns home on July 1 of next year?

c-1. Suppose that Fred’s employer offers Fred a permanent overseas assignment beginning on March 1 of next year. How much U.S. gross income will Fred report next year if he accepts the permanent assignment abroad? Assume that Fred will be abroad for 305 days out of 365 days next year. (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

c-2. If Fred’s employer also provides him free housing abroad (cost of $16,000 next year), how much of the $16,000 is excludable from Fred’s income? Assume that Fred will be abroad for 305 days out of 365 days next year. (Use 365 days in a year. Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

Answer 1

solution

Answer a-2

Fred will procure $120,000 by traveling to another country, however he can prohibit $101,300 under the outside earned pay avoidance. Henceforth, Fred will report net pay of $18,700 from the compensation earned. Since Fred meets the necessities for the outside earned pay avoidance, he may likewise bar the business gave lodging costs that surpass $16,208 (16% x $101,300), up to a most extreme rejection of $14,182 (14% x $101,300). Along these lines, Fred may reject $3792 (the lesser of (a) ($20,000 lodging cost less $16,208 = $3792) or (b) $14,182). Therefore, Fred incorporates $16,208 ($20,000 - $3792 rejection) of the business gave lodging in gross salary

Answer to - b

Fred will win $60,000 amid the primary portion of the year and $54,000 amid the second 50% of the year. Be that as it may, on the grounds that he isn't physically abroad for 330 days amid a sequential year time span, Fred won't most likely case any outside earned pay prohibition. In this way, he will report $114,000 of gross pay one year from now

Answer to c-1

Fred will gain $18,000 amid January-February and $100,000 amid the rest of the year. In any case, he will probably guarantee a fractional rejection of $84,648 dependent on his time abroad [$101,300 full avoidance x 305/365 (days in remote nation/days in year)]. In this way, Fred will report net pay of $33,352 ($118,000 – 84,648).

Answer to c -2

Since Fred isn't abroad the whole year, the outside lodging rejection is additionally decreased proportionately. The sum rejected, the costs must surpass $13,544 ($101,300 x 305/365 x 16%), with a most extreme prohibition of $11,851 ($101,300 x 305/365 x 14%). Hence, Fred may reject the lesser of (a) $1,285 ($16,000 lodging cost less $13,544=$2456) or (b) $11,851. Accordingly , Fred incorporates $13,544 ($16,000 - $2,456) of the business gave lodging in gross salary.