Vivinavi : Morioka : (Japan) Morioka

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Expatriation ・ Freelance Required ！ In-depth "Double Taxation Measures" for U.S. Taxpayers

---Two Options for U.S. Taxpayers Working Abroad ： Two Options to Prevent Double Taxation ---
When a U.S. citizen, green card holder, or other person with U.S. tax obligations earns income abroad, there are two important programs to prevent "double taxation （ in both the foreign country and the U.S.": the Foreign Earned Income Exclusion （ and the Foreign Tax Credit （. There are two important programs to prevent "double taxation ）": the Foreign Earned Income Exclusion and the Foreign Tax Credit . The choice of which one to choose depends on the amount of income, local tax rates, and family structure.

1 ． Foreign Earned Income Exclusion （ What is the Foreign Earned Income Exclusion ） ？
This is an exclusion of income earned abroad by U.S. citizens, green card holders, and others who have tax obligations in the United States, This is a system that allows U.S. citizens, green card holders, and other individuals with U.S. tax obligations to exclude up to a certain amount of income from U.S. taxation.
This system is designed to prevent "double taxation （ in both foreign countries and the U.S. ） on the same income.

\1) Outline of the System
This system allows a person who has a tax liability in the U.S. to exclude from U.S. taxation up to a certain amount of income earned by working abroad. It is one of the mechanisms to prevent double taxation.

(2) Who is eligible
U.S. citizenship or permanent residence holders （ Green card holders ） and other U.S. taxpayers who meet one of the following criteria ：
1. Bona Fide Residence Test （ True Residence Test ） ： Resided in a foreign country from January 1 through December 31
2. Physical Presence Test （ Physical Residence Test ） ： Spent 330 or more days out of 12 consecutive months 330 days or more in a foreign country （ including long term business trips ）
*It is important to have a "Tax Home （ Tax Base ）" in a foreign country for the entire year.

(3) Maximum amount that can be excluded
• For 2025 ： Up to approximately $ 126,500 （ per person ） "Wages ・ wages ・ self-employment income earned abroad" etc. can be excluded from U.S. taxable in the U.S.
• Married couples filing jointly can exclude up to $ 253,000 if they each meet the requirements.
• Foreign housing expenses such as rent and utilities can be additionally excluded if they meet the requirements.

(4) "Foreign-earned income" （ Foreign-earned income ） is ？
• salary, compensation, or professional fees for work provided by an individual abroad.
• It does not include income considered as profit sharing, such as shares or dividends.

(5) Income earned abroad not included
• Military personnel of the U.S. government or its agencies ・ Civil service pay
• Pensions ・ Pension benefits
• Investments ・ Stock income, Dividends ・ Interest

(6) Notes
• Once you choose an exclusion, it will continue to apply automatically in that and future years （ Withdrawals require a procedure ） .
• You will not receive the Foreign Tax Credit （ ） for foreign taxes on excluded income.
• If you choose to exclude, you will not be able to use the Earned Income Credit （ Earned Income Tax Credit ） or Additional Child Tax Credit （ Additional Child Tax Credit ） or other credits ・.

2. Foreign Tax Credit （ Foreign Tax Credit ）
Outline of the System
If an American taxpayer pays income tax in a foreign country, the tax paid in that foreign country is deducted directly from the American income tax to prevent double taxation. The taxpayer is allowed to deduct the tax paid in the foreign country directly from his/her U.S. income tax liability to avoid double taxation.

(2) Who is eligible
• US taxpayers who paid foreign income tax on foreign income
• US citizens and green card holders

(3) What taxes are eligible
The deduction is limited to income taxes imposed on the taxpayer by a foreign country. Inheritance tax and consumption tax are not eligible.

(4) Merit
• Taxes paid in a foreign country are deducted directly from the "tax" due in the U.S., making the tax reduction very effective.
• Unlike the exclusion system, there is no dollar limit on the deduction.
• A wide range of "foreign-source income （ including investment income ） is eligible.
• Undeducted foreign taxes can be carried forward up to 10 years after the previous ・ year.

(5) Notes
• Taxes on income excluded by the Foreign Earned Income Exclusion cannot be deducted.
• In order to accurately calculate and reflect the foreign tax amount, the tax payment procedure （ withholding and tax return ） must be completed in the foreign country.


---Important Points to Know---
Choice ： FEIE and FTC cannot be combined. You must choose one of them to file.
Continuity （ FEIE ） ： Once you elect the FEIE, it automatically applies to the following year, and there is a 5-year limit on re-election after withdrawal.
Disadvantages （ FEIE ） ： If you choose FEIE, you may not be able to use other major tax credits such as Child Tax Credit.
Flexibility （ FTC ） ： Foreign taxes not fully deductible under the FTC can be carried forward for up to 11 years （ 1 year before and 10 years after ）.

In conclusion, it is important to carefully select the most tax-efficient plan, taking into account your income, the tax rate in your country of residence, the number of children you have, and the types of deductions you wish to take in the U.S.