What are the tax implications for my son, who lives and works in Japan, visiting the United States?

by Neil Dierolf, CPA | Jul 11, 2019

My son is employed in Japan, which is the source of all his income. He lives there. Will a visit to the United States impact his tax status? 

According to the IRS, a U.S. citizen or resident alien living outside the United States is generally required to file their income tax returns in the same way as those residing in the United States. In most cases, you must file a return if your gross income from worldwide sources is greater than your standard deduction amount ($12,000 for single filers and $24,000 for married filing joint filers in 2018).

Although U.S. citizens living abroad are taxed on their worldwide income, there are deductions available to help alleviate the U.S. tax burden. These include the Foreign Earned Income Exclusion, the Foreign Housing Exclusion, and the Foreign Housing Deduction. To qualify for these deductions, a taxpayer must have a “tax home” in a foreign country and must meet either the “bona fide residence test” or the “physical presence test.”

The IRS defines a tax home as “the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual.” If your son is permanently employed in Japan, it is likely that he will meet this standard.

For the bona fide residence test, a taxpayer must be considered a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year. Whether a taxpayer is a bona fide resident depends on factors such as your intention, the purpose of your trip, and the nature and length of your stay abroad. According to the IRS: 

“During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business. To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from such trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign country.”

The physical presence test requires that a taxpayer be physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. The 330 days do not have to be consecutive. A full day is defined as a period of 24 consecutive hours beginning at midnight.

Therefore, if your son is indefinitely engaged to work in Japan and meets one of the two tests outlined above, a trip to the United States is not likely to impact his ability to claim the foreign exclusions and deductions. Be sure to consult with your tax adviser to confirm that these qualifications are met.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Neil Dierolf, CPA, is a staff accountant with Wouch Maloney & Co. LLP in Horsham, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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