Yes, good guess intention. I had actually forgotten about this non-trivial fact when I posted the OP.
So, let me make sure I got this straight:
a) as an independent contractor, she does not have to pay income taxes to any country, except to the US if she fails the 330 day test.
b) regardless of the 330 day test, she’ll have to pay 15% of her income for Social Security
c) she gets to deduct legitimate business expenses from her income (which might include items that wouldn’t apply to normal working folks)
Do I have it straight?
I have a question about (a). Will she have to send in the quarterly estimated taxes even if she will likely be out of the country for 330 days and not be subject to income taxation?
I suppose one could get into trouble here by assuming one would pass the 330 day rule, but then unexpectedly fail the 330 day rule near the end of the year.
Interesting. That must be a logistical nightmare. It’d be easier if Social Security were simply an investment “bucket” of all the money one contributes in a lifetime, but that’s not how it works. I assume Japan has a similar system, but I can imagine the difficulties that must arise trying to calculate the benefit upon retirement.
I would talk to a professional or to the IRS about this. One issue I see is that she may have to file for 2008 taxes before she has a chance to qualitfy for the 330 day rule. However, she should be able to refile and get the money back. Please note that people living overseas are allowed a later date to file, but any interest on non- or underpayment accrues from April 15th.
I’m just happy that the systems are now tied together. I used to be that you had to work for 25 years in Japan to be eligible, and then they wouldn’t pay unless you were living in Japan.
Algernon, you have a good grasp of the essentials now. You ask:
As I alluded to before, the IRS is not too fussed if you don’t make your proper quarterly payments, as long as you make up any shortfall in the December payment. While not strictly legal, for many years I have not made any quarterly payments. Instead, on January first or thereabouts, I file form 25555, Extention of Time to File. With this form, which extends the deadline for four months, you have to send in any money which you think you’ll owe. I send it in with the full amount of my estimated taxes (including Self Employment Tax, aka Social Security), then I file the rest of my papers sometime around July. Since my estimate is never quite exact, sometimes I owe the IRS a bit, sometimes they owe me a bit. They’ve never complained about my doing it this way.