Expat tax advice

[jemmy]

Hello, fellow redditors!

I have a complex tax situation and am looking for advice or a recommendation for a reasonable tax consultant.

Here are some data points that explain the complexity:

• I moved to Japan from NYC on January 15th and will likely return to the US in 2-3 years.
• I have a wife (Japanese citizen) and 3 daughters (Dual citizens).
• Because some of my banking and brokerage accounts require a US address, I'm claiming dual residency at my parent's house in Louisiana. Due to Covid, I could not go there before leaving, but my mail is forwarding to that LA address. I'm not sure if I needed to be living there physically for some time to claim the address, but there was a pandemic.
• I have numerous accounts registered either at my Japanese address or my U.S. address in Louisiana. For example, I have a U.S. checking account and a separate savings account at a different bank registered to my Japanese address, and have a U.S. 401k and multiple 529 accounts registered to my U.S. in LA.

Income sources:

• I own an apartment in NYC, my former residence for 10 years, and am now renting it to a tenant; therefore, I have income generated in NY.
• I have a 6-month employment agreement with a Japanese company that ends August 31st. My Japanese health insurance is now going through them until the end of the contract.
• I have a Nevada-based L.L.C that is doing U.S.-based consulting work. Not a high volume of work, but likely 10-20k in 2021.
• In January 2021, I got severance for a job I held 12/9/2019 through 12/31/2020

Any advice?

 

[claudiu]

@jemmy My tax situation is not quite as complex as yours, but it was complex enough to seek help. I’ve had a very good experience having Taxes For Expats do my US taxes (not clear to me if you’re looking for help in Japan, but I agree with everything CombiniMan says about Japan taxes) . I believe you can also do a consultation as well with Taxes For Expats—or others, like Greenback or HR Block, etc. if that’s all you want, but my personal experience was just having them do the taxes was a great relief. They told me that doing FTC was better for me because I have children and they were certainly right. I’d previously done FEIE.

 

[jemmy]

@claudiu

Taxes For Expats

I was considering them or Greenbacks. Maybe I'll give them a try.

Thank you

 

[resjudicata]

@jemmy In the future, I recommend you put the country in the post title, because different countries all have their own regulations.

If you don't speak Japanese then you'll definitely want to pay someone to do Japanese taxes. It's possible to do your US taxes yourself, if that's something that you're particularly interested in doing, although if it's only for 2 years maybe it's not worth your time to figure out the details.

Either you use the FEIE or the FTC. These are explained clearly on many websites. You should spend some time reading about both of them now, and especially the former, because there are specific rules about how long you have lived abroad in order to qualify for it. When you file taxes next year, you'll have to choose between those two.

 

[rogueebear]

@resjudicata

If you don't speak Japanese then you'll definitely want to pay someone to do Japanese taxes. It's possible to do your US taxes yourself, if that's something that you're particularly interested in doing, although if it's only for 2 years maybe it's not worth your time to figure out the details.

I can't speak for US taxes.

But I totally recommend giving the Japanese taxes yourself a go instead of paying someone.

It sounds like Japan side OP is only filing a "Red Form" Tax Return (Income tax). Compared to other Japanese systems and UIs, Japanese taxes are oddly quite straight forward especially for a "Red Form" return. With a bit of financial savviness, Google Translate (for those who cannot read Japanese) and help from this sub, it should be quite easy to do alone using E-Tax.

Things just get a bit more difficult and complex when you venture into the "Blue Form" Tax Return territory.

 

[kristhuy]

@rogueebear

OP is only filing a "Red Form" Tax Return

Do you mean white?

In any event, while I basically agree with you regarding personal income tax, it appears that OP has an LLC, which may trigger Japanese corporate income tax liabilities. For that, I would definitely recommend professional help.

 

[rogueebear]

@kristhuy Sorry I was just referring to the colour format in E-tax haha.

I did notice that LLC but he did not mention the day to day operations of it. If OP does not actively engage in its operation does it become Foreign sourced income?

If so (and OP remits nothing to Japan) then the only income he needs to worry about Japan side so far is the income from his 6 month contract with a Japanese employer.

 

[kristhuy]

@rogueebear

If OP does not actively engage in its operation does it become Foreign sourced income?

It can never really be "foreign-source income", because the income is being earned by the LLC, not OP. The question is simply whether the LLC itself has Japanese corporate tax obligations. As discussed above, this depends on a variety of factors.

 

[rogueebear]

@kristhuy Ah I see. Then yea I guess OP’s tax obligations to Japan could be a lot more complex than I thought.

 

[kristhuy]

@jemmy

I'm claiming dual residency at my parent's house in Louisiana.

Just to be clear, under the US-Japan tax treaty there is no such thing as "dual residency". You can only be a tax resident of either the US or Japan at any one time. The test for residency can be complicated (see this section of our wiki), but since you came to Japan with the apparent intention to stay for more than one year, and you have both your family and your job in Japan, it is extremely likely that you are a Japanese tax resident during this time, not a US tax resident.

It's generally illegal to mislead a financial institution as to your tax residency, because it can result in incorrect reporting/information exchange (i.e., if a US bank doesn't know you're a Japanese tax resident, it can't tell the IRS to report the existence/contents of that account to the Japanese authorities). However, I won't specifically comment on whether you are doing anything wrong by having a US address on record with certain US financial institutions (the laws differ by state and I obviously haven't read those institutions' terms of service). But in general, there is an obligation to be honest with financial institutions regarding your tax residency.

am now renting it to a tenant; therefore, I have income generated in NY.

Yes, this is "foreign-source" income for Japanese income tax purposes. It will only be taxable in Japan to the extent that you remit funds from outside Japan (until you have been in Japan for five years).

Nevada-based L.L.C that is doing U.S.-based consulting work.

Are you personally doing the work or is the LLC employing others to do it? The difficulty for you will be whether the LLC may be subject to Japanese corporate tax as a result of your presence in Japan, especially if you are the one performing the work that is generating the majority of the LLC's income. This issue was recently discussed in this thread. You'll also want to review Article 5 of the US-Japan treaty, and the Treasury's commentary on its interpretation (both available from the IRS's website here).

Actively operating a US-based LLC while being a Japanese tax resident is often extremely messy, and there may be no easy solution that avoids the need for professional advice on this point, since avoiding Japanese corporate tax probably requires you to hire a Japanese tax accountant to tell you that you aren't liable, and paying Japanese corporate tax probably requires you to hire a Japanese tax accountant to handle the corporate accounting for you. So whether you're liable or not, you probably need professional advice.

I got severance for a job I held 12/9/2019 through 12/31/2020

If this severance corresponds to work performed in the US, it will be foreign-source income with respect to Japan, so as with the rental income, it will only be taxable to the extent of any remittances (assuming you received the income after you moved to Japan, of course).