Question

Louise works in a foreign branch of her employer's business. She earned $5,000 per month throughout the relevant period. Which of the following is correct?

a) If Louise worked in the foreign branch from May 1, 2018 until October 31, 2019, she may exclude $40,000 from gross income in 2018 and exclude $50,000 in 2019.

b) If Louise worked in the foreign branch from May 1, 2018 until October 31, 2019, she cannot exclude anything from gross income because she was not present in the country for 330 days in either year.

c) If Louise began work in the foreign country on May 1, 2018, she must work through November 30, 2019, in order to exclude $55,000 from gross income in 2019 but none in 2018.

d) Louise will not be allowed to exclude any foreign earned income because she made less than $105,900.

e) None of these.

Answer 1

Louise's eligibility for excluding foreign earned income depends on meeting the Physical Presence Test and her earnings being below the maximum threshold for the tax year. For 2018 and 2019, the exclusion amounts are about $104,100 and $105,900, respectively.

Step-by-step explanation:

To answer the initial question about Louise and her eligibility for excluding foreign earned income from gross income, it's important to understand the U.S. tax law specifics on foreign earned income exclusion (FEIE). Under U.S. tax law, American citizens and resident aliens earning income abroad may qualify for the FEIE if they meet either the Physical Presence Test or the Bona Fide Residence Test, and their foreign earned income is below a certain threshold, which adjusts annually. For 2018, the maximum exclusion amount is about $104,100, and for 2019, it's approximately $105,900.

The Physical Presence Test requires the taxpayer to be physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. The period does not need to coincide with the tax year. Therefore, a correct answer would depend on the specific dates of Louise's employment and whether her presence overseas meets the criteria.

For example, if Louise worked from May 1, 2018, to October 31, 2019, she would likely meet the Physical Presence Test for a 12-month period that spans part of both years. She could potentially exclude the prorated amount of her earnings for the time she was present in the foreign country during each tax year up to the maximum allowed. The exact exclusion amounts can be calculated based on when she reached the 330 full days abroad within the relevant tax years.

Therefore, knowing the accurate dates of her physical presence is crucial to determine the correct exclusion amounts. Without this information, a direct answer to the specific options given cannot be confidently provided, illustrating the complexity of tax matters and the need for precise date tracking.