# How to handle filing of US income while home from Japan for a few months



## bonster21 (Jan 26, 2015)

Hi everyone, sorry for the long post. Would appreciate any suggestions you may have on my situation.


*Here is my situation for 2014:*
I am a US citizen who has been living in Japan for the past 10 years and have claimed FEIE every year, either through the physical presence test or by claiming bona fide residency abroad. 2014 was a little bit different for me though in terms of income sources.

I was physically present in Japan for nerdy all 2013 and up to mid Oct 2014 and will be staying in America until the end of Feb 2015 at which time I will return to Japan (I have a spouse visa). When I left Japan I told my local municipal government that I was leaving and it’s my understanding that I’m not currently considered a resident of that city and I will have to reregister once I return.

While I have been in the states I have continued to earn my self employed / part-time income from Japan (paid in Japan), but I also started earning a W2 from an American company starting in Sept 2014 (note that this is before I physically came to the US). Of course all withholding taxes, social security etc. are taken from my US paycheck.

I understand that in the US and Japan (since I have been there more than 5 of the past 10 years) you must declare worldwide income and that your physical location at the time of work is what matters as opposed to where you are paid.


*Here are some of my questions and concerns:*

Since I temporarily stopped being a resident in Japan do I still have to report my income made while I was abroad and living in America? Or can I just file the income that I made up to the point where I stopped being a resident and went to America? 


In America can I claim FEIE on my income in Japan before I came back to the states and then just pay income tax for the months I was in America? (of course I would report the income I was getting in Japan during that time as well)


*And this is what I’ve been thinking of doing even though it’s not completely by the book:*

In Japan - file for all income made in Japan (even while I wasn’t physically there) and not report the US income because I don’t want them to start wondering about what I’m doing with the money I made here.

In the US - file all world income and exempt through FEIE (bona fide resident) the income made in Japan up to the point when I came back to America. ( I don’t think I would bother trying to exempt September’s US portion though since I’ve already paid the withholding tax etc.)

By doing this I would effectively be paying double the tax for the income I made in Japan while in America. But if it keeps both sides happy and non suspicious then I’m fine with that.

Again sorry for the long post, but I hope someone can give me some advice on how to file all this.


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## Bevdeforges (Nov 16, 2007)

I'd keep things simple. You appear to be only temporarily "visiting" outside Japan - and the fact that you still have your spouse visa and won't (I assume) be applying for a new visa in order to return at the end of Feb, I would still claim "bona fide resident" and take the FEIE on your US returns. (I also assume you have retained your home in Japan, even if you had to "check out" with the Japanese city authorities as you describe. If your husband is still in Japan, this approach should be perfectly acceptable.)

If you want to be completely "by the book" on your filing, then indicate how much of your W-2 income was earned while you were physically present in the US (on the 2555 form) and apportion that for FEIE purposes. The "no more than 30 days in the US" only really applies to the physical presence test - as long as you retain your residence/home base in Japan while you're away, the fact that you're in the US more than 30 days shouldn't affect your FEIE eligibility.

Not sure how things work in Japan, but if you're supposed to declare your worldwide income in Japan, I would report the W-2 income, too - but any Japanese income tax you pay on that you'll be able to take advantage of, using the Foreign Tax Credit (FTC). In the upshot, you shouldn't pay double tax on any of your income. You can't get the US Social Security back - but you will get a couple additional quarters of credit in the system, and that certainly can't hurt.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

I'm not sure about Japan specifically, but many countries consider you a tax resident as long as you maintain immigration status as a resident. In those countries you must explicitly terminate your immigration status, not only your municipal residence, in order to depart the tax system. You'll have to check that in the Japanese tax rules.

On the U.S. side is income from a U.S. employer while you're physically present in the U.S. "foreign earned income"? I'd say no.

So, assuming Japan considers you a tax resident (because you didn't terminate your immigration status, and because that immigration status remains in force), what you'd probably do is pay U.S. income on your U.S. source income per normal, take the FEIE on eligible earned income (and based on the bona fide residence test), and take a foreign tax credit on your Japanese tax return for the U.S. income tax paid on your non-foreign earned income. As a side benefit that also likely means you can make a U.S. Roth IRA contribution for tax year 2014 if you wish -- and you have until April 15th to do it -- since you'll have some U.S. earned income that isn't swept into the FEIE.

That'd be my guess at this point how to handle your circumstances, but it's only a guess.


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## bonster21 (Jan 26, 2015)

Thank you Bevdeforges and BBCWatcher for your advice and sorry for the late reply. I'm finally back in Japan now and working on my taxes for both countries. I agree that a foreign tax credit would be the proper way to do things, but I was hoping to keep the Japanese tax authorities out of the loop so they don't start asking questions about what I did with my American earned income (investments etc.). Anyways, I'll just have to weigh my options (and any risks)!

Thanks again for sharing your knowledge!


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