Thursday, February 22, 2007
Time to File
Previously, I did a post which was an overview of the tax situation in Japan. At this time, there are a few specifics I think are worth mentioning about dealing with income tax back home. If you're a U.S. citizen residing in Japan, you should have gotten the above booklet in the mail if you've filed previously. If you haven't filed before, you'll need to contact the embassy for forms or file on-line. Those living abroad get an automatic extension so you'll have until June 15 to file but there's nothing to be gained from putting it off aside from feeding your impulse to procrastinate.
If you made less than $82,400 last year, you don't have to pay any taxes (but you still have to file) and can file most simply using the 2555-EZ Foreign Earned Income Exclusion form in conjunction with the 1040 form. I'm betting most people reading this blog, like myself, aren't making anywhere near that much while here. If you are, you can probably afford a tax accountant to take care of business for you.
In order to qualify as a foreign resident and be exempt from paying U.S. taxes, you don't have to have Japanese residence status. You just have to have been living outside the United States for 330 days during a 12-month period. You don't even have to have lived in only one country to qualify.
Your employer (or employers) should have provided you with an income statement for 2006 at the beginning of this year. They usually give you two or three copies of a small, thin form. These forms are used to file Japanese income taxes and you shouldn't have to ask for one but, if you didn't get one, you should start pestering someone about it. Even though it is all in Japanese, it's adequate proof of income for the I.R.S.
When you calculate your income in U.S. dollars, you are supposed to use the exchange rate that was active during the period in which you received the income. For 2006, the average yen to dollar exchange rate was 116.31 yen to the dollar according the U.S. Federal Reserve. I'm pretty sure this is a safe figure to use when making your calculations.
The income taxes you pay in Japan are listed on your income statement but they have nothing to do with your U.S. income taxes so you don't have to mention them anywhere or factor them into your calculations. You have to file Japanese income tax forms between February and March 15 at a local tax office. In most cases, you probably neither owe Japanese income taxes nor are owed a refund but some employers will chronically over-tax employees because it's more convenient for them to apply a blanket tax rate which errs on the side of caution. My former company, for instance, always charges 10%, which is far more than necessary.
If you've got savings back home, you'll have to include a 1099-INT form if you earned more than $1500 in interest last year. Your bank should automatically send you an interest statement each year if they are aware of your address in Japan. If you operate from a U.S. address as far as your U.S. bank is concerned but are filing as an overseas resident, you'll have to have your bank send a form off to you or get a family member to forward one to you.
My husband usually files our income tax forms each year but, given that I have a lot more free time than him these days, I'll be dealing with it this year. People usually make a big deal out of filing their income tax forms but it generally isn't all that tough if you follow the instructions given in the book. I guess it could be pretty complicated if you made a lot of money and wanted to claim a lot of business expenses to reduce your tax burden but, for most of us in Japan, it's unlikely to be all that complicated.
Disclaimer: I'm not a tax expert and am not responsible for any mistakes you might make or errors as a result of following my layman's advice! ;-)