Question

A. Rachel has $90,000 of foreign earned income and $500,000 of U.S. based income. She is anticipating having similar income in future years. She is concerned about double taxation of her income and whether or not she should elect a particular tax benefit. Assuming you were her tax adviser, what would you recommend?

B. Assume that Rachel has $700,000 of foreign earned income and $300,000 of U.S. based income. She is anticipating having similar income in future years. How would you adjust your suggestions from Part A?

Answer 1

Answer - There are number of ways to prevent double taxation, One can claim "Foreign Earned Income Exclusion"

Based on the credit method in the US, one will only have to pay tax in the US if the tax rate abroad is lower than the rate prevailing in US, or if the income is exempt in the country where you reside. This can include things that may be taxed in the US and not abroad, or taxed lower, such as rental of real estate, certain benefits, investment products or sales of real estate.