Sarah, a married taxpayer who files a joint return, is
considering a foreign assignment for two years. In 2019, she will earn $120,000
in the foreign country . Sarah has no other income. She will be eligible for
either the foreign tax credit or the foreign-earned income exclusion. The
average tax rare on Sarah’s earnings if fully taxab le under U.S. law would be
24%. The average tax rare for the foreign salary is 20% under the foreign
country’s laws.
a. Discuss in general terms the computation of the foreign
tax credit and its limitation.
b. Would Sara h be better off electing the foreign tax cred
it or the foreign earned income exclusion? Explain.
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