Foreign Earned Income Exclusion. (Obj. 1) From March 9, 2015 until August 14, 20

Question

Foreign Earned Income Exclusion. (Obj. 1) From March 9, 2015 until August 14, 2016 Eva is sent to London, England on a temporary work assignment. Eva's salary during 2015 is $100,000, of which $84,000 is earned while working in London. Her salary during 2016 (a leap year) is $125,000, of which $77,000 is earned while working in London. How much of Eva's salary is taxed in 2015 and 2016? Assume the maximum foreign earned income exclusion for 2016 remains at $100,800. Besides taking the exclusion for foreign earned income, what other options are available to Eva?

Explanation / Answer

To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all three of the following requirements.

From this question we see that Eva is in London for a continuous period of 524 days which is more than 330 days, so she’s qualified for the exlusion of foreign income. From 9th march 2015 to 31st dec 2015 is 297 days and from 1st jan 2016 to 14th aug 2016 is 226 days

Out of which 84000 earned in London

So we can take 297 days exemption out of 365 days for foreign income. That is 84000*297/365= 68350 is the exclusion from taxable income

So total taxable income is (84000-68350)+16000= 31650 for 2015

Out of which 77000 earned in London

So we can take 226 days exemption out of 365 days for foreign income. That is 77000*226/365= 47676 is the exclusion from taxable income

So total taxable income is (77000-47676)+48000= 77323 for 2016

Even if exclusion remains at 100800

Following are the other options for Eva. If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to $100,800 of your foreign earnings. In addition, you can exclude or deduct certain foreign housing amounts. See Foreign Earned Income Exclusion and Foreign Housing Exclusion and Deduction , later.

You also may be entitled to exclude from income the value of meals and lodging provided to you by your employer. See Exclusion of Meals and Lodging , later.

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