Intuit Academy Tax Practice Exam

What is the reporting requirement for US citizens regarding foreign income?

1. They are not required to report foreign income

2. They must report their worldwide income

3. They can choose to report only employment income from abroad

4. Only income exceeding $10,000 must be reported

The correct answer is: They must report their worldwide income

US citizens are required to report their worldwide income, which includes foreign income. This reporting obligation stems from the principle of citizenship-based taxation, meaning that citizens are taxed on their income regardless of where it is earned. As a result, US citizens must include all income from foreign sources, whether it's wages, dividends, interest, or capital gains, in their annual tax return. The requirement to report worldwide income ensures that US citizens fulfill their tax obligations accurately and prevents income from being excluded simply because it was earned outside the United States. Although there are various exclusions and deductions, such as the Foreign Earned Income Exclusion, these do not eliminate the fundamental duty to report the income. The other choices do not align with the tax responsibilities of US citizens. The assertion that individuals are not required to report foreign income overlooks the key requirement to include all sources of income. The notion that they can choose to report only employment income does not reflect the comprehensive nature of the reporting requirement. Lastly, the idea that only income exceeding $10,000 must be reported is misleading, as there is no minimum threshold for foreign income reporting; all income must be accounted for, regardless of the amount.