Question

Exercise 5-21 (LO. 2)

Mio was transferred from New York to Germany.

a. He lived and worked in Germany for 340 days in 2020. Mio's salary for 2020 is $190,000.

Assume a 366-day year. In your computation, round any division to four decimal places before converting to a percentage. For example, 0.473938 would be rounded to 0.4739 and converted to 47.39%. If required, round your final answer to the nearest dollar.

What is Mio's foreign earned income exclusion?

b. He lived and worked in Germany for 354 days in 2020. Mio's salary for 2020 is $262,400.

Assume a 366-day year. In your computation, round any division to four decimal places before converting to a percentage.

Answer 1

A taxpayer is allowed to deduct $107,600 of the foreign earnings if it meets any of the two tests.

• Bonafide Residence Test - Has been a resident of a foreign country for an entire year
• Physical Presence Test - The tax payer has been physically present in the foreign country for atleast 330 days out of 12 consecutive month period.

When a taxpayer is has stayed for less than a year, the exclusion amount shall be allowed proportionately.

Required a)

Mio has live in Germany for 340 days out of 366 days which amounts to 92.90% (340/366)

Thus the amount of foreign earned income exclusion allowed to Mio = $107,600 * 92.90% = $99,960

Required b)

Mio has live in Germany for 354 days out of 366 days which amounts to 96.72% (354/366)

Thus the amount of foreign earned income exclusion allowed to Mio = $107,600 * 96.72% = $104,071

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