# First time expat filer



## Phase (Apr 23, 2016)

Hello all, complete newbie here + expat taxes.

Paying taxes to the US while in Japan completely slipped my mind, I didn't think that I would need to file since, well, I paid taxes to Japan.

I have lived in Japan since 2014/10 and haven't filed for 2014 or 2015...
I understand that expats get an automatic 2 month extension, so I assume my deadline for 2015 filing is June 15, but definitely late for 2014.

Could anyone guide me through the filing process?
I've read around the forums, but still really confused regarding the filing process...
Below are the points that I've confirmed/points that I am confused about

1. I work in a completely Japanese company, not a American company based in Japan
2. I have lived in Japan since 2014/10 so I am eligible for the foreign earned income exclusion, at least for 2015, not sure about 2014...
3. I am almost 100% sure my income (~35k/year) is covered by the foreign earned income exclusion
4. I have tried TaxACT and TaxSlayer, seems like TaxACT requires an upgrade to the Basic version to file form 2555 and TaxSlayer doesn't seem to have a form 2555?
5. The freefile software is a bit confusing, so I may just file hardcopy...in this case, would the only forms I need to fill out be Form 1040EZ and Form 2555?
6. How do I take care of the missed 2014 file?

Thank you very much for any help, greatly appreciated.


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## BBCWatcher (Dec 28, 2012)

Phase said:


> 2. I have lived in Japan since 2014/10 so I am eligible for the foreign earned income exclusion, at least for 2015, not sure about 2014...


You are eligible for the FEIE for the foreign earned income you had in 2014 from the date of your move.

I'm rather surprised you "forgot" to file for 2014. You lived in the United States for over 9 months, after all. It's possible you're owed a refund for that tax year that you haven't collected yet. That'd be nice to collect.



> 4. I have tried TaxACT and TaxSlayer, seems like TaxACT requires an upgrade to the Basic version to file form 2555 and TaxSlayer doesn't seem to have a form 2555?


H&R Block's free edition is probably the best free option for tax year 2015 for most overseas U.S. persons. For tax year 2014 you can pay $12.99 to download TaxAct Deluxe if you have a Windows PC, and that's probably the lowest cost tax preparation software option for that year.

For consistency you might want to bite the bullet and pay for 2015's TaxAct. Search for promotion/coupon codes to make it a little less expensive. Alternatively, H&R Block's "Deluxe without State" downloadable edition for 2014 costs $44.95 and is available for both Windows and Mac.



> 5. The freefile software is a bit confusing, so I may just file hardcopy...in this case, would the only forms I need to fill out be Form 1040EZ and Form 2555?


First of all, I don't recommend the "freefile" site. Try H&R Block instead. Second, no, that's not the right form. The vast majority of overseas U.S. persons have to file a 1040. You may have other form attachments. Schedule B and IRS Form 8965 are very popular, as examples. The tax preparation software should figure all that out for you -- that's its primary value. At the end you might not be able to e-file, but that's OK: just let the tax preparation software print out all the forms for you, sign them, then mail them in.



> 6. How do I take care of the missed 2014 file?


File it. If you're due a refund, no problem. You're just late collecting your refund, so you've lost a bit of interest you could have earned on that money. If you're not due a refund, you can consider whether you want to participate in the IRS's Streamlined Program. Probably not for something this simple, but it's theoretically possible.

Please note that you may also have to file FinCEN Form 114 for 2015 and for one or more previous years.

Do you have anything fancier than an ordinary bank account outside the United States? Anything like an investment account?

You might want to consider whether it makes sense to skip the Foreign Earned Income Exclusion and just take the Foreign Tax Credit. As a resident of Japan that could be a smart thing to do -- it would have been for me, but that's a mistake I made -- but try both options with that tax preparation software.


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## Bevdeforges (Nov 16, 2007)

A slightly different point of view, but in many ways, the same:

First of all, take a look at IRS publication 54 for many of the details. Available in both HTML and pdf form on the IRS website.



> 1. I work in a completely Japanese company, not a American company based in Japan
> 2. I have lived in Japan since 2014/10 so I am eligible for the foreign earned income exclusion, at least for 2015, not sure about 2014...
> 3. I am almost 100% sure my income (~35k/year) is covered by the foreign earned income exclusion


No problem with the FEIE for 2015 and for 2014, you can take it on all your foreign earned income. Any earnings you had before you left for Japan will have to be settled up as part of the 2014 filing.



> 4. I have tried TaxACT and TaxSlayer, seems like TaxACT requires an upgrade to the Basic version to file form 2555 and TaxSlayer doesn't seem to have a form 2555?
> 5. The freefile software is a bit confusing, so I may just file hardcopy...in this case, would the only forms I need to fill out be Form 1040EZ and Form 2555?


Generally speaking, if your salary is your primary source of income and your "investment income" consists of bank interest, you'll need to file a form 1040, 2555, Schedule B (so you can check the box regarding foreign bank accounts) the health care exemption form and that should do it.


> 6. How do I take care of the missed 2014 file?


Just do it. The filing is late, but the penalty for late filing is a percentage of the tax due. If you don't owe any taxes (or if you're getting a refund of taxes paid on your US income) there's no penalty.

If you've filed your own taxes in the past, you probably won't need to use the tax prep software. But if you're used to having your taxes done, you may want to use it. Try the "wizard" thingee on the IRS website to see if you qualify for any of the free-file programs. But it still pays to take a look at pub 54 so you have an idea what you're doing with the software.
Cheers,
Bev


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## Phase (Apr 23, 2016)

Thank you for the responses, been a bit busy this week with golden week approaching.



BBCWatcher said:


> You are eligible for the FEIE for the foreign earned income you had in 2014 from the date of your move.
> 
> I'm rather surprised you "forgot" to file for 2014. You lived in the United States for over 9 months, after all. It's possible you're owed a refund for that tax year that you haven't collected yet. That'd be nice to collect.


I just started working in 2014/10 and was considered a dependent of my parents up until then, so 2014 was the first time I had to file. I was unaware that the US required you to file even if you lived outside of the US and paid taxes to the country you reside in (read that the US is one of the very few countries that requires this type of filing). So, it was more of lack of knowledge than forgetting to be honest.



BBCWatcher said:


> H&R Block's free edition is probably the best free option for tax year 2015 for most overseas U.S. persons. For tax year 2014 you can pay $12.99 to download TaxAct Deluxe if you have a Windows PC, and that's probably the lowest cost tax preparation software option for that year.
> 
> For consistency you might want to bite the bullet and pay for 2015's TaxAct. Search for promotion/coupon codes to make it a little less expensive. Alternatively, H&R Block's "Deluxe without State" downloadable edition for 2014 costs $44.95 and is available for both Windows and Mac.


I see, thank you for the recommendation.
If my income hasn't really changed between 2014 and 2015, would it be possible to use H&Rs free edition for 2015, then apply what I filled in to the 2015 online form to a 2014 form (hardcopy), then send it in via mail?



BBCWatcher said:


> First of all, I don't recommend the "freefile" site. Try H&R Block instead. Second, no, that's not the right form. The vast majority of overseas U.S. persons have to file a 1040. You may have other form attachments. Schedule B and IRS Form 8965 are very popular, as examples. The tax preparation software should figure all that out for you -- that's its primary value. At the end you might not be able to e-file, but that's OK: just let the tax preparation software print out all the forms for you, sign them, then mail them in.


Understood, I will try out H&Rs free edition to get an idea of what forms I need to fill out and file.



BBCWatcher said:


> File it. If you're due a refund, no problem. You're just late collecting your refund, so you've lost a bit of interest you could have earned on that money. If you're not due a refund, you can consider whether you want to participate in the IRS's Streamlined Program. Probably not for something this simple, but it's theoretically possible.
> 
> Please note that you may also have to file FinCEN Form 114 for 2015 and for one or more previous years.
> 
> ...


Hmm, I don't think I'm due a refund (since I wasn't working in the US in 2014, started my first job in Japan), but as mentioned above, I'll try filing 2015 first, then fill out my 2014 form as well.

Nope, I only have an ordinary bank account in Tokyo.

Thanks for the recommendation, I will look into the Foreign Tax Credit form 1116. What exactly do you mean by "as a resident of Japan that could be a smart thing to do"? 




Bevdeforges said:


> A slightly different point of view, but in many ways, the same:
> 
> First of all, take a look at IRS publication 54 for many of the details. Available in both HTML and pdf form on the IRS website.
> 
> ...


I've read through a lot of the IRS documents, but they are quite confusing to me, first time filing for taxes (starting working in 2014/10).
I see, so since I didn't have any income in the US for 2014, everything for 2014 and 2015 can be settled with the FEIE.




Bevdeforges said:


> Generally speaking, if your salary is your primary source of income and your "investment income" consists of bank interest, you'll need to file a form 1040, 2555, Schedule B (so you can check the box regarding foreign bank accounts) the health care exemption form and that should do it.


Thank you for this, was really confused on what I needed to fill out, even though I was pretty sure I just needed the bare minimum forms that expats need to fill out (since I don't believe I have any fancy income).



Bevdeforges said:


> Just do it. The filing is late, but the penalty for late filing is a percentage of the tax due. If you don't owe any taxes (or if you're getting a refund of taxes paid on your US income) there's no penalty.
> 
> If you've filed your own taxes in the past, you probably won't need to use the tax prep software. But if you're used to having your taxes done, you may want to use it. Try the "wizard" thingee on the IRS website to see if you qualify for any of the free-file programs. But it still pays to take a look at pub 54 so you have an idea what you're doing with the software.
> Cheers,
> Bev


I'd be on the latter, first time filing for taxes myself. I'm going to try out BBCWatcher's recommended H&R free edition to see if I can get through it without any trouble (already tried TaxAct and TaxSlayer, didn't seem to have the forms I needed in the free edition).


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## BBCWatcher (Dec 28, 2012)

OK, briefly, even though you are eligible to take the Foreign Earned Income Exclusion (FEIE), you are not _required_ to take that exclusion. It's a choice, not an obligation. If you don't take the FEIE then that income benefits from the Foreign Tax Credit instead.

Japan has a relatively high income tax, meaning your Foreign Tax Credit is likely to be high. So let's suppose for sake of argument that you earn $30,000 per year in Japan, have no passive income (just to make it simple -- no interest, no dividends, etc.), that your total Japanese income tax is $4,500 (15%), and that your total hypothetical U.S. income tax would be $3,000 (10%). In this case you would get to take a Foreign Tax Credit of $4,500, and that FTC more than fully offsets your hypothetical U.S. tax. So your U.S. income tax owed is zero. But interestingly that also still leaves you free to collect the Additional Child Tax Credit (if you have U.S. citizen children living with you -- maybe not yet, but maybe in the future), meaning you'd get $1,000 in free money per child which you wouldn't get if you took the FEIE. On top of all that, you'd "bank" $1,500 in excess FTC each year. So then let's suppose after 5 years in Japan you return to the U.S. to work, and you've accumulated $7,500 (5 times $1,500) of banked FTCs. You start paying U.S. income tax again (and stop paying Japanese income tax), but -- good news! -- you can use your $7,500 of banked FTCs to offset the first $7,500 of U.S. income tax on your income from work. In other words, the IRS pays down the difference between your U.S. tax rate and your higher Japanese tax rate if you skip the FEIE and take the FTC. If indeed your Japanese income tax is higher, of course. Great deal!

Anyway, that's more or less what happened to me. I worked in Japan for a few years, but I was foolish and took the Foreign Earned Income Exclusion. I got to pay the higher Japanese income tax rates, but I got no credit for doing so. I couldn't spend down my banked FTCs when I left Japan because I didn't have any. Arggghhhhh!  Lesson learned.

Your mileage may vary, of course. Run the numbers and see what works for you, bearing in mind there are some limitations on "flipping" back and forth between taking and not taking the FEIE. The deal would be just too good if the IRS let you do that. So if you skip the FEIE, you (pretty much) have to keep skipping it in subsequent tax years, until you return to work in the U.S. again. Then, after working in the U.S. a bit, you can move out again -- say, to Dubai, which has no income tax -- and take the FEIE from that point if you choose.

The point is that a lot of people think the best you can do with the IRS is zero tax owed. Wrong. You can sometimes do better than zero. And if General Electric can do better than zero, legally, then why not you?


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## Phase (Apr 23, 2016)

BBCWatcher said:


> OK, briefly, even though you are eligible to take the Foreign Earned Income Exclusion (FEIE), you are not _required_ to take that exclusion. It's a choice, not an obligation. If you don't take the FEIE then that income benefits from the Foreign Tax Credit instead.
> 
> Japan has a relatively high income tax, meaning your Foreign Tax Credit is likely to be high. So let's suppose for sake of argument that you earn $30,000 per year in Japan, have no passive income (just to make it simple -- no interest, no dividends, etc.), that your total Japanese income tax is $4,500 (15%), and that your total hypothetical U.S. income tax would be $3,000 (10%). In this case you would get to take a Foreign Tax Credit of $4,500, and that FTC more than fully offsets your hypothetical U.S. tax. So your U.S. income tax owed is zero. But interestingly that also still leaves you free to collect the Additional Child Tax Credit (if you have U.S. citizen children living with you -- maybe not yet, but maybe in the future), meaning you'd get $1,000 in free money per child which you wouldn't get if you took the FEIE. On top of all that, you'd "bank" $1,500 in excess FTC each year. So then let's suppose after 5 years in Japan you return to the U.S. to work, and you've accumulated $7,500 (5 times $1,500) of banked FTCs. You start paying U.S. income tax again (and stop paying Japanese income tax), but -- good news! -- you can use your $7,500 of banked FTCs to offset the first $7,500 of U.S. income tax on your income from work. In other words, the IRS pays down the difference between your U.S. tax rate and your higher Japanese tax rate if you skip the FEIE and take the FTC. If indeed your Japanese income tax is higher, of course. Great deal!
> 
> ...


I see, thanks for the explanation, I'll look into it on the H&R site.
I don't plan to return to the US at all at the moment though, so I may just go with the FEIE.

So far, after using the H&R free file, it seems that I need to fill in the regular "W2 wages, salaries, and tips" (which I assume is 1040?), form 2555 (excluding all income), and form 8965 (health care covered by company). Struggled a bit with unfamiliar tax terms, but pretty sure these are the forms I need to fill.

However, I'm a bit stuck on W2: what do I put in for the EIN since the company I work at is a fully Japanese company? Is it common for a foreign company to have an EIN or a W2 form equivalent?

Thank you in advance.


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## Bevdeforges (Nov 16, 2007)

Don't use the W2 for reporting foreign wages. Scroll through any menu you're given to see if there is any option for "foreign salary" "foreign employer compensation" or some equally arcane term for foreign salary and wages. Evidently, they use the information from the W2 to match up to the salary reports received from the US employers. A foreign employer does not report anything to the IRS, so you need to find how the software wants you to report foreign (non-W2) "earned income." That should somehow trigger the 2555 form (or a question about whether you want to use the FEIE or the FTC). 
Cheers,
Bev


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## AKIF.M (May 24, 2016)

Bevdeforges said:


> Don't use the W2 for reporting foreign wages. Scroll through any menu you're given to see if there is any option for "foreign salary" "foreign employer compensation" or some equally arcane term for foreign salary and wages. Evidently, they use the information from the W2 to match up to the salary reports received from the US employers. A foreign employer does not report anything to the IRS, so you need to find how the software wants you to report foreign (non-W2) "earned income." That should somehow trigger the 2555 form (or a question about whether you want to use the FEIE or the FTC).
> Cheers,
> Bev


The income from foreign employer must be reported under Foreign Employer Compensation. I would agree with BBCwatcher that you have to weigh the option of FTC for FEIE and it all depends on income tax rate in country of employment. FTC calculation is based on actual tax paid rather than tax withheld.

DISCLOSURE: This communication has not been prepared as a formal tax opinion within the procedures described in Treasury Department Circular 230. As a result, we are required by Treasury Regulations to advise you that for any significant Federal tax issue addressed herein, the advice in this communication (including any attachments) was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.


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## Phase (Apr 23, 2016)

Sorry for the late reply, have been a bit busy lately.

Thanks to everyone on this forum, I was able to fill out the necessary forms through the H&R Block Free File. In regards to the W2 form, as Bevdeforges mentioned, there was a section in the "income" section of the free file where I could enter my non-W2 income. After that, I just followed through the wizard and it exported a pdf will all of the forms filled out. Since I couldn't efile, I printed the forms out and sent it in to the address listed on the IRS site.

I assume if my current income status does not change before next years file, I would just need to fill out the same forms (would probably be able to efile too).

Thanks again~


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