My stepdaughter is working for a Japanese company in Tokyo. She has been hired as independent contractor. She arrived on
6/13/06 and planning to leave on 5/30/07. Is she qualified under overlapping rule (physical presence rule) to use the number of qualifying days in order to take advantage of 2006 foreign earned income exclusion provision? Does she have to file form 2555? Can she also apply overlapping rule for
2007 and get prorated inclusion for 2007? She has paid 10% flat rate tax to Japanese authorities for the income she has earned in Japan.
If your daughter remains outside the US for the requisite
335 days, she would qualify for the exclusion under the physical presence rules. She would not count either the first or last day, because she would not have been outside for the full day. So, if she did not return to the US for more than 14 days, she should be OK. So, she would have 201 days in 2006 and 149 days in 2007. Prorating the exclusion on this basis gives her a maximum of about $45,000 in 2006 and $33,000 kn 2007/ She does have to file Form 2555 to claim this exclusion; it is not automatic. You say she has been hired as an independent contractor. If so, and she is truly not an employee of the Japanese company, she will be liable for the self-employment social security tax. However, if this job qualifies as a temporary assignment (since it will last less than 1 year) she may be able to deduct her expenses while in Japan. Issues involving the exclusion and foreign tax credit are not simple. Your daughter really should consult a professional who is familiar with these rules. Paying a professional could help her avoid making some costly mistakes. Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans
If she remains in Japan until 5/30, she would, of necessity, be outside the US on 4/15. If so, she qualifies for the automatic extension until 6/15 to file (and pay) for those who meet this requirement. If she doesn't file until she returns to the US, she would then have been in Japan for the needed 335 days to qualify. Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans
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