Earmark Podcast | Earn Free Accounting CPE

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Blake: [00:01:25] Hello everyone, and welcome back to earmark. I'm your host, Blake Oliver, and today we have a guest with a fascinating journey. Joining us is Eric Azevedo, a California CPA who built his own international tax practice all the way from rural Japan, starting with a degree in philosophy. Eric transitioned into accounting and leveraged his Japanese language skills to break into Tokyo's accounting scene. We'll dive into his unique career path, the challenges us expats face with tax obligations, and how he's bridging cultures in the world of tax. Eric, welcome to the show.

Eric: [00:02:02] Thanks for having me.

Blake: [00:02:04] So, Eric, you're a career changer like me. Yeah. You started in philosophy. I started in music. Yeah. Tell tell me how you went from being a philosophy major to being a CPA.

Eric: [00:02:21] Well, originally when I was a university student, I really thought that I was going to be going to law school and be a lawyer. Uh, that had been kind of my idea since I was a, you know, young teenager. Uh, and, uh, you know, during, uh, during my undergraduate years, I kind of changed course, and I decided that I actually wanted to be a teacher. Uh, and so I changed my direction to be a social science teacher. The connection to philosophy, by the way, is, you know, to to enter law school, you need to take the Lsat, which is heavily based on logic problems and things like that. So a lot of people going to pre-law major in philosophy. Uh, but anyway, so I changed my, um, uh, course to be a social science teacher. And, uh, so I went to grad school for that for a little bit. And then I found out about this, uh, program where you can go teach English in Japan for between 1 and 5 years. Uh, so I decided to apply for that, and just for the experience and, you know, uh, have a fun year or two abroad before starting my career. And I ended up really loving it in Japan. And, uh, after the program was finished, I ended up finding a private job, uh, to stay on in Japan as a teacher.

Eric: [00:03:50] Um, but, uh, it turned out that I couldn't see much of a future continuing to teach English forever. And as my 30th birthday approached, I really felt I had to look into what my options were going forward. And so I spent a lot of time reading up on careers. And, you know, I looked into becoming a computer programmer and, uh, various other things, but I kept coming back to CPA. Um, uh, it seemed like something I could do. Uh, not that it would be easy, but I thought, you know, this this looks tough, but I'm pretty sure I can do this. Uh, and then, uh, you know, it seems like you can, uh, at the time, uh, everyone was saying it's very easy to find jobs in accounting. Uh, so that's the path I went for. I came, I came back to the United States, uh, partly for personal reasons, uh, but also in addition to go back to school, catch up on my accounting education and sit for the CPA exam, which I did. It took me altogether about three years of going to school and sitting the exams before I finished everything up. Yeah.

Blake: [00:05:09] That's interesting. I also considered going back to school for computer science. Yeah. But when I looked into the various programs, it was during the Great Recession times, and it was hard to get in to a lot of these programs. They were very impacted. A lot of people wanted to do it. And so I saw that I could do the CPA without having to go get another degree. Yeah. And and I could pick and choose where I got the classes. So I was able to do it while working. Yeah. Were you doing it full time or were you working when you went back for your coursework?

Eric: [00:05:44] I was taking a full time course load. Um, I was mainly going through Santa Monica College, which which lets you do their classes online. There were two classes.

Blake: [00:05:57] I loved their classes. They were great. Like the accounting one and two. Yeah, some of the best courses I've ever taken online.

Eric: [00:06:04] Yeah. So my. I got an accounting certificate from Santa Monica College. Uh, there were a few I had to do in person. The tax classes. Uh, um, I had to do in person. So I went to Irvine Valley College for that. And those were also great. So I really. Yeah, for for career changers, I definitely recommend the California Community College System. It was very high quality education and I was really happy with it. And I do feel it helped me prepare for the the exams.

Blake: [00:06:35] Yeah, fairly low cost as well I think. Yeah, I.

Eric: [00:06:39] Had.

Blake: [00:06:40] I.

Eric: [00:06:40] Had to fight them to prove that I was from California so that they would give me the cheap credits.

Blake: [00:06:46] Oh, because you. I've been away too long. You've been away awake so long. That's funny.

Eric: [00:06:50] Um, but there's a loophole where if you graduated high school in California, you're. You're forever considered a Californian. But I had to I had to kind of dig up the the law on that for them. Yeah.

Blake: [00:07:03] Well, I mean, I guess that's appropriate, given that you're now in tax and there's a lot of complexity around that and you're digging up, I'm sure, the law pretty frequently. Um, so I guess it's appropriate.

Eric: [00:07:15] Yeah, yeah. The tax treaty comes in a lot. That's I would say probably the main difference between a US based, uh, tax preparer and a foreign based tax preparer is you're going to spend a lot of time, uh, getting into the tax treaty weeds, uh, which is something that a US tax preparer may never touch in their entire career. Yeah.

Blake: [00:07:38] So I definitely want to talk about, uh, that, you know, like the complexities of expat tax. I think we have a lot of listeners that are interested in in that, um, it's glamorous, you know, you get to live in another country if you want. And, um, I don't know, like, maybe it was, uh, when I was watching a lot of YouTube stuck at home in past years, I started watching a lot of videos, uh, by Americans in Japan. And it just seems like such an incredible country. Um, what is your what's your favorite thing about living in Japan?

Eric: [00:08:17] Oh, man, I don't know. Um, so I've lived in various parts of Japan. Uh, Okayama, Hiroshima, then eight years in Tokyo, and then this year I've moved out to the countryside. Um, and you can kind of see out the window. I'm basically in a forest area here. Um, and, uh, man, it's hard to. It's hard to pin down. Um, I can tell you in Tokyo, I really liked the lifestyle of, um, everything being so convenient. Uh, you know, uh, my apartment was within a ten minute walking distance of several supermarkets and convenience stores. My my dentist was literally next door, uh, to my apartment. Uh, just it was so convenient. And, uh, and there are so many small restaurants. Uh, and so I really liked that, uh, that lifestyle there where there's just so much easily accessible. Uh, the trade off is I was living in a, you know, pretty small apartment. Yeah, with my wife, the two of us. It was comfortable enough. But, you know, uh, that is nice.

Blake: [00:09:29] You know, being able to walk everywhere, having everything in your neighborhood that you could need. Yeah. And so. So now that you've moved out to the countryside, how far are you from, like, what's your closest city? Give me some, like, context here.

Eric: [00:09:45] Um, well, the nearest town, uh, is about a 15 minute drive away. Uh, so not walkable. Uh, if I need anything, uh, then I would need to drive. Uh, or I'll need to get a bicycle or something, but even that would be at least 30 minutes each way. So, uh. Yeah. It's pretty. Yeah. There's a there's a convenience store I can walk to that's about a one hour round trip on foot. Got it. That's the closest.

Blake: [00:10:19] So you're really out there? Yeah. Yeah, yeah. But I imagine you can. You have the forest around you and you can take walks. Yeah, it's.

Eric: [00:10:26] It's a nice walk. Um, there's no lights. So, uh, I have, I have a, I have this little forehead light I wear, um, because unless it's a full moon, you can't really see anything out there. Uh, but, yeah, it's a nice walk in the evening.

Blake: [00:10:43] I guess you don't have to worry about, like, mountain lions or anything like that. No.

Eric: [00:10:47] Um, yeah. I'm, uh. I'm near some mountains. We do get some bears. Um, I haven't seen one personally, but. Yeah, you. There are reports of bears coming down, and we also have wild, wild boars.

Blake: [00:11:03] Wild boars?

Eric: [00:11:04] Yeah. That's. They're all over Japan. Yeah.

Blake: [00:11:07] So, well, let's talk about your time in Tokyo because that's where you started. Mhm. Uh, so you were teaching English and you decided okay I can't do this forever. It's, you know, sort of like not a, not a career path, I assume that I mean, you just do the same.

Eric: [00:11:24] It's very flat. Yeah. Um, you never really make any more money. Um, uh, it's even kind of in a lot of areas, the pay for that has been going down. Yeah. Which is just a terrible situation to be in as you get older. Yeah. Uh, you know, some people, um, start their own schools, uh, and you can make some money doing that, but it's it's, you know, it's a business. Starting your own business is tough, and it's a real grind. And, uh, I looked into that, and it it wasn't for me. Too much work for too little reward. Um, you know, I wanted something where I could take the weekend off. If you're an English teacher, weekend is when your customers are available, you know? So. Right? Right. Yeah. That's where the money is.

Blake: [00:12:10] So that's. Yeah, that's also why I like being a CPA versus being a musician is I get my nights and weekends back. Yeah. Uh, it depends where you work. Right. But. Yeah. Yeah. Well, I know the working culture in Japan can be pretty intense, so. Well, yeah, what I want, I want to know that, like, what? It was like working as an accountant once you came back. But first, how did you get back from the US to Japan? How did did you apply? Like, how did you get the job in Japan?

Eric: [00:12:41] Uh, so I had finished, uh, I had just finished my last section of the CPA exam, and, uh, it was bec so I was, I was like 100% sure that I had passed it. Uh, I wasn't, so I was sure that that result was going to come back and that, uh, all that was left to do was to submit the application, uh, and get my license. So I kind of asked around with some expat, some people in the expat community if they had any leads. And, uh, I got an email from a guy saying, hey, uh, I just quit my job at this accounting firm because I'm moving on to a different opportunity, but I think it would be a great, uh, fit for a fresh CPA. Uh, so he gave me the email of the of the guy who runs it, and I emailed, and we set up a Skype interview, and we talked for about an hour. Uh, this guy is a Japanese CPA and certified tax accountant in Japan. Uh, audit and tax are two different licenses altogether. And he has both of them. Uh, so anyway, I interviewed, I explained my situation. You know, I'm expecting my CPA license to come through in a couple of months. Uh, and I'm interested in working in Tokyo and learning Japanese tax and, uh, as well as doing US tax. And, uh, after our conversation, he said, that sounds good. Um, you know, uh, when can you come to Tokyo? And I said, uh, you know, I can come soon. This is for, uh, this is for a in-person round of interviews. And he said, no, I want you to come start working as soon as, as soon as possible.

Blake: [00:14:28] You got the job?

Eric: [00:14:29] I got the job in one, uh, because he was really looking for, um, accountants who could speak English, which are very few and far between. Uh, so.

Blake: [00:14:41] And when did you learn to speak Japanese?

Eric: [00:14:43] Just during my time, uh, um, living in Japan as an English teacher, I studied in my free time and took some tests. There are some tests you can take to mark your progress. Um, I took Japanese in college as my foreign language because, uh, we were required. I went to University of California, and we had a language requirement. Uh, and I chose Japanese because I liked Japanese movies. Uh, and I did not. I did not do. Well, I barely I barely passed through those classes. Um.

Blake: [00:15:19] It's a very challenging language.

Eric: [00:15:21] It's a very challenging language. And those classes were five days a week every morning. Uh, yeah. So they were tough. Uh, so when I finally moved to Japan. My language ability was pretty limited, even though I had taken two years of Japanese in college, so I kind of was starting from scratch. I could read, uh, you know, Japanese has two, two alphabets plus the Chinese characters. I could read the two alphabets pretty easily. It's one of the things that stuck from college. But the rest I was kind of starting from scratch. Yeah.

Blake: [00:15:59] Okay, so you got the job offer on the phone. You flew to Japan? Yeah. What was it like starting out as an accountant?

Eric: [00:16:10] Um, yeah, it was tough. Um, learning the Japanese tax system, it's pretty different. Um, they have a system where, um, most people, most people's taxes are done through their employer. Uh, so most people do not prepare a tax return. Uh, it's settled on your paycheck at the end of the year.

Blake: [00:16:32] So it's like payroll taxes. It's just all handled by the employer.

Eric: [00:16:36] Yeah. At the end of the year, your employer asks you for some extra stuff that might give you tax credits. You know, they'll ask you to confirm your dependents if you have a if you have a home mortgage, uh, you know, uh, if, uh, if you had, um, there's a few other things, uh, and then they'll, they'll put those deductions in and, and submit it to the tax office for you. Um, if you have multiple jobs or, um, if you have a passive income, a lot of passive income or sole proprietorship or anything like that, then you have to file on your own. But the vast majority of people are employees with one job with salary only. So, uh, for most people, it's kind of an invisible process. Japanese people definitely don't think all the time about doing their taxes the way Americans do. Yeah. Yeah.

Blake: [00:17:27] It sounds it sounds kind of nice on, Honestly.

Eric: [00:17:31] It works. Um, uh, you know, it works out. You know, uh, there's really no reason I think a lot of people would agree in the US system, there's no reason for the average person to be doing all this paperwork, uh, you know, and and the joke is, the IRS already already knows what what the number is. They just want to check to see if you can come up with it. Right. Uh, so.

Blake: [00:17:56] Were there any cultural adjustments you had to make personally when you moved to Japan, either when you were teaching or when you got into accounting?

Eric: [00:18:08] Yeah. Um, when I first moved in, uh, to be an English teacher, there's an adjustment. Um, the, um, you know, the the way people speak, especially in a professional environment, is a lot less direct. Uh, and, you know, the stereotype for Americans is pretty true. We kind of speak our mind. Um, uh, and it's not that you can't say what you're thinking, but you just have to be a little bit more circumspect and and choose your words and timing. Uh, so it's just a matter of, uh, uh, yeah. Getting used to that. Um, and I would say the other thing is that, uh, Japanese people take their, um, their leisure time very seriously. So, um, their hobbies are taken very seriously. If you get invited, if you get invited to join them in their hobby or weekend event, you should, uh, you should, you know, show up and be on time and, uh, and, you know, take it seriously. Got it. Yeah. Yeah.

Blake: [00:19:14] So it's it's work hard. Well, work hard and play hard. Work hard, play out. So, like, uh, what were the hours like? I know, as I said before, my impression just from abroad is that like Japanese salarymen? You know, they work a lot of hours. Is that your experience as well?

Eric: [00:19:35] There is truth to that, especially if you work for one of the big companies. They expect their people to be devoting their life mainly to the company. Um, not always so. My firm was started by, uh, you know, as I said, a CPA and tax accountant who worked for one of the major, uh, trading houses in Japan. Um, I won't name it, but he, uh, he was doing the, uh, the typical salaryman life, uh, all day, every day at work, after work, going out, drinking with the boss and coworkers. Um, and, uh, you know, according to his story, he got married and had his had his little girl and decided that, uh, that he didn't want to do that anymore. Uh, and so his idea was to, um, at his time at this trading house, he had been forced more or less to learn English, uh, for some contracts they were working on. And so his idea was to start an accountancy and tax firm focused on foreigners. And that he would hire foreign workers. Uh, and try to stick to a 8 to 5 as much as possible. Uh, yeah. And and be the boss instead set the conditions. So that was kind of the, the concept of the firm that I worked for. Uh, to be less culturally salaryman. Japanese work environment.

Blake: [00:21:14] Well, which fits well if you're working with expats who kind of have, like, a similar expectation. Um, yeah. So that's great. Where were you the first? Like? Were there other Americans working at this firm when you joined? Were you one of the early ones?

Eric: [00:21:30] Uh, when I joined, I was the seventh person, uh, in the office. Uh, employee number six was a Canadian girl, so I was actually not, uh, the first, uh, but to this date, I'm still the only American, uh, as far as I can remember. We're we're over 20. We're over 20 people now. Uh, but, yeah, um, we've had we have now, uh, uh, Chinese, Korean, uh, Philippine employees. So a real mix. Uh, uh, so he's trying to capture as, as much of the, uh, the foreign resident market as possible.

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Blake: [00:22:13] So these days, are you still with that firm? Are you doing your own thing? What's your situation?

Eric: [00:22:18] So I worked there for eight years, And then I told him that I intended to move out here. Uh, and so we worked out an agreement. I became a contract employee. So now I am a sole proprietor, and, uh, I still work. I still do basically the same work for them. But now on a on a, on a fee basis instead of for a salary.

Blake: [00:22:44] Got it. And you can take on your own clients. Do your own thing.

Eric: [00:22:48] Yeah. Yeah. I spend, uh, you know, I'd say I spend half and half my time. Us clients and the firm clients. And a lot of times they're the same clients. Uh. Got it. You know, that's how they came to me. Through through the firm. Uh, if they're American, the they inevitably ask the question. Do you know anyone who can help with US taxes? And then my boss says, actually, we have a guy. He sits right over here. Why don't we introduce him? So it. Yeah, it's a pretty good system worked out for me.

Blake: [00:23:20] So what's your typical day like working for yourself out in the Japanese countryside?

Eric: [00:23:27] Uh, I get up. I'm not a super early riser, so I get up maybe 8 or 830 and, uh, have a cup of coffee with my wife before she leaves for work. Um, and, uh, then, you know, I get up here by between 9 and 10 a.m. and, uh, turn on the computer and check the emails and off, off to the races. Uh. I go into Tokyo twice a month to be in person in the office. I spend 4 or 5 days a month, uh, in the office in Tokyo.

Blake: [00:24:04] Oh. That's nice. So, yeah, even though you're out there in the country, you still get to experience one of the greatest cities in the world.

Eric: [00:24:12] Yeah, although I don't I don't do much because, uh, I'm usually pretty busy when I'm when I make my office visits, and I usually end up just going to the hotel and watching TV after. Uh, so yeah, it does feel like a waste. Like, oh yeah, I'm here in Tokyo. And yeah, it's.

Blake: [00:24:34] Got to be fun just to be around in the city experiencing, you know, it's good to see people.

Eric: [00:24:38] I don't think I would want to be, uh, you know, I don't think I would want to be here 100% of the time. I might go a little stir crazy. It's good to see people in the office and meet. Meet clients in person and, uh. Yeah. Check in face to face.

Blake: [00:24:55] How long does it take you to get to Tokyo?

Eric: [00:24:59] 70 minutes on the bullet train.

Blake: [00:25:01] That's not bad at all.

Eric: [00:25:02] Yeah, not too bad. Yeah.

Blake: [00:25:05] So let's talk about the tax requirements. Uh, for expats in the US. Um, so are your clients Americans Living in Japan?

Eric: [00:25:18] Yes. Um, Americans living in Japan. Uh, or and then also there's the Accidental Americans. So people who have U.S. citizenship who have never maybe really lived in the US, or maybe they lived in the US when they were children. Uh, but if you're a US citizen, you, uh, are required to report your worldwide income no matter what. The US is one of only two countries in the world that has citizenship based taxation. Uh, and I believe the other one is Eritrea. And, uh, so if you are a US citizen and you make over the, uh, the reporting, uh, amount, uh, you are required to file a tax return just like anyone else. Uh, most other countries are territory based, a residence based taxation. Uh, so, uh, which is a lot simpler system usually. Yeah. Yeah. If you live there, you file a tax return. That makes sense. Yeah.

Blake: [00:26:21] So it sounds like if I moved to Japan, if as long as I didn't make too much money, I'm okay. I don't have to worry about filing US taxes.

Eric: [00:26:31] Well, you know what's the minimum? I should probably know this offhand, but what's what's the minimum filing requirement for a single person? Right. It's like, what is it, $15,000? I'm not sure. I should probably know this, but.

Blake: [00:26:43] Right. Okay, so basically, if I'm. If I'm eating food in Japan. Yeah. Then I've already exceeded that. Yes. Um, so everybody, pretty much everybody, all Americans living there, anyone with American citizenship has to file.

Eric: [00:26:58] Yeah. Basically, unless unless you are a dependent and, you know, you're a housewife with no income or something. Right. Yeah. You're you're going to need a filing. And then, uh. Yeah.

Blake: [00:27:08] So. So tell me, like, what is the trickiest part about this for your clients.

Eric: [00:27:15] The trickiest part, um, or.

Blake: [00:27:18] Maybe the most interesting. Whatever. What? Yeah. You know, what are the like? Why does somebody need to hire an expert such as you to do this? You know why? You know why can't we just go do this with TurboTax? That sort of thing?

Eric: [00:27:31] Yeah. Um, uh, so two, two things that I think are especially complicated for expats compared to us people. First is, if you're a business owner, um, if you own or control a foreign corporation entity, um, the reporting for it is pretty, uh, complex and difficult. Uh, they basically ask. Well, it depends on your level of ownership and control. Um, but if you own at least 10% of a foreign company, um, there are some reporting. And if if you control the company, so own over 50%. 80%. Um, you have to basically submit a full balance sheet PNL listing of the other owners, uh, you know, details of your stock and capital assets. Um, and it's, uh, you know, it gets quite complex. Then there are these, uh, taxes, there's Gilti tax, which you may have heard of Gilti tax. Yeah. Global uh, global low tax income. I have to look up the exact, uh. Yeah. Let's see. Global intangible low taxed income. So you have to calculate. Yeah. You have to calculate, uh, if you're uh, if you're a foreign corporation is basically earning, um, uh, low taxed income, like passive incomes, interest and royalties and things like that. And then, uh.

Blake: [00:29:09] So this is like I moved to Japan and I open a business in Japan. Now I have this requirement and I'm reporting back to the IRS on all this.

Eric: [00:29:20] Yes. Yeah. Yeah. And, you know, it's got one of those ridiculous flat penalties attached to it. Uh, it's like $10,000 per year of non-filing. Yeah.

Blake: [00:29:33] And I don't want to mess around with that.

Eric: [00:29:35] You don't want to mess around with it now. Fortunately, if you're, um, all of this goes on a form called the 5471. Now, fortunately, if you're an individual, the penalty isn't automatic. If you're a if you're a C Corp or something, you it gets assessed automatically. If you're an individual, it seems like they only whack you with it if you get caught. Uh, for other if you get caught for tax evasion or other other things, um, you know, there's there's a similar thing. There's the FinCEN, uh, the f bar report. Um, it's the same thing. It's this report that everyone needs to submit. If you have more than $10,000 in an overseas account. A lot of a lot of people don't know that about submitting this report. Uh, and again, it comes with that $10,000 penalty attached. And again, it seems that people only get hit with it if they get in trouble for, you know, other things, then they add it on, you know, on top. Uh, but, you know, the law says that you can be hit with the penalty. You know, it's that totally at the the IRS and Treasury Department discretion that they're not hitting expats with it. So it is a little stressful to have that looming over you.

Blake: [00:30:51] Yes I imagine. Do you get, uh, clients who come to you that haven't filed for years and didn't know that they needed a file?

Eric: [00:31:00] Yes, that's probably the most common situation. Um, so. And then depending depending on their individual details, you can either just help them backfill a few years or there is a um, there is a program called the streamlined Procedures that you can use, which will officially catch you up with the IRS. Uh, um, you have to you submit three years of tax returns, six years of fbars, and you have to submit an affidavit explaining why you haven't been filing, uh, and, uh, then if they accept it, then you're officially caught up.

Blake: [00:31:45] You're forgiven.

Eric: [00:31:45] You're forgiven? Yeah. Um, if there's any, uh, the, uh, penalties on unreported, uh, foreign income will be forgiven. Uh, you still have to pay interest. Uh, and, uh, if you had US sourced income, you'll still get the penalties on that. So.

Blake: [00:32:05] So is the Japanese tax system still relatively simple for Americans living in Japan like you described? If you if you're a Japanese or is it also more complicated?

Eric: [00:32:18] Um, it's it's basically the same, uh, for a, an American and a Japanese person, uh, with a few exceptions. Uh, if you're a foreigner, uh, for the first five years of your residence, uh, there's a few kinds of income that, uh, that you don't have to report unless you bring money into the country from overseas. Um, and then it becomes taxable up to the proportion that you brought money in. Um, after five years, you're globally taxable, the same as a Japanese person. Um, and then, you know, you have to deal with foreign tax credits, assuming if you're paying taxes, if you have passive income and you're paying tax in both the US and Japan. You'll have to work out your foreign tax credits on each side.

Blake: [00:33:07] So, um, I don't know about Japan specifically, but I've heard that if I go to another country and establish residency there, live there, or work there, I can get, I can usually get a credit on my US taxes for whatever I pay locally. Is that the same situation in Japan?

Eric: [00:33:25] Yes, that's the situation. I mean, the IRC, you know, it's a basic US tax law that you are allowed to do that. And then the US has tax treaties with a lot of countries that, um, that maybe change some of the details of what, uh, what, what the foreign tax credit is available on. Um, uh, but yeah, even if you're in a country that doesn't have a treaty, the IRC still allows, uh, for foreign tax credit on foreign income.

Blake: [00:33:59] What is what is the tax situation like in Japan in general, are taxes lower than they are here? Are they higher? Are they they they start.

Eric: [00:34:10] They start low and then get much, much higher. So if you're low income, your tax burden will be, uh, less than a low income US person. But then once you get up over, uh, my. Yeah, I'm hesitant to use specific numbers, but once you get up over like a middle class income, it ramps up pretty severely.

Blake: [00:34:35] Um, how high does it get?

Eric: [00:34:37] So there's two main income taxes. There's the national income tax, and then the residence tax, which is basically a city tax, municipal tax. Uh, the city tax is almost always exactly 10%. Uh, and then the national tax tops out at 45%.

Blake: [00:34:57] Okay. So so that's Combined 55%. Yeah, that's that's a lot more than I think most people pay here in the US, where it's like the average ends up being somewhere in the low 20s, I think. Yeah. Or 30s. Yeah.

Eric: [00:35:13] But also in Japan, I think there are a lot more people on a middle income. There's a lot fewer people making money in the higher tax brackets. Executives are paid much less here than in the US. Professionals, you know, make less money in general. Uh, yeah. So there's just a lot fewer, uh, millionaire next doors as compared to the US, I think.

Blake: [00:35:39] Interesting.

Eric: [00:35:40] Yeah.

Blake: [00:35:41] Yeah. So let's talk about, uh, working remotely. It seems like you've got a rock solid internet connection. I yeah, yeah. I assume that I always figured, like, the whole country of Japan is, like, wired. Is that the case? Was it easy to get it, or did you have to, like, install it?

Eric: [00:35:59] When I when I first moved here 20 years ago, rural areas could be pretty spotty. Um, and even cell phone reception. You know, the first city I taught English in was, uh, up in the mountains and pretty rural small city of about 30,000 people. Um, and when I moved there and the people from the school helped me set up my cell phone, they said, you know, uh, there's a few different providers, but only one works up here. So that's the one you're going to you're going to need to get, uh, now it's better. There's a lot more coverage. And I use a, I use something called neuro, which is a very fast internet connection. Uh, but that did not exist when I first moved 20 years ago.

Blake: [00:36:44] Is it a cellular connection? Is it wired?

Eric: [00:36:47] No. It's wired. It's. I can see the internet line from my window here coming from the telephone pole to my house.

Blake: [00:36:54] What kind of speeds do you get?

Eric: [00:36:57] Oh, man, I'm so bad with that stuff. It's pretty fast. That's all I know. Yeah.

Blake: [00:37:02] I mean, based on based on the upload speeds right now as we record, I think, I think it must be equivalent to like at least cable here, if not fiber. Yeah.

Eric: [00:37:12] Yeah, I'd say it's fiber. Um, yeah. Streaming. I've never had any problem. That's great.

Blake: [00:37:18] Well, so then, you know, being connected is not a problem for you being out in the country. Yeah. Um, what's it like, uh, working remotely in Japan, like, uh, you said you go into Tokyo a few times a month to get the FaceTime. Yeah. Um, like, do people are people as comfortable on zoom or, like, what do you use actually like to to. Yeah. Meet with people.

Eric: [00:37:45] We use zoom zoom a lot. Um, uh, email and zoom. That's it. And by remote, I have a remote connection to my PC in the office. There's some software I use that only works physically in the office, so I have to remote in to use that. Um. Uh, so yeah, it's pretty simple. Um, you know, when when Covid hit, we went full remote pretty quickly. Um, and we stayed that way for over a year, I think. So we got pretty good at working remotely. Um, and I think that probably added to my my idea to move out here. Uh, and, and become a, you know, a contractor instead of a full time office employee. It gave me idea. Okay. It's it's possible. Uh, you know, we had been we were renting an apartment, but had really been looking to buy somewhere, and, uh, Tokyo real estate's in a pretty big bubble right now. Land? Land is is really crazy. They're like, forget about the cost of even building the house. Just the land is is kind of insane in most of the neighborhoods. So we thought, well, if we move to the countryside, we can buy some cheap land and build what we really want. Uh, but I'll have to figure out what to do for work. Well, you know, coronavirus happened, and it turns out that it is possible to do this work remotely. So. Yeah.

Blake: [00:39:20] And you built your own house. You built your dream house.

Eric: [00:39:23] Well, I hired someone to build it, but, yeah, it's, uh, we we had a lot of input on the design. Yeah. For example, this office, my my main mandate to the architect was, uh, light, windows and light because a lot of Japanese houses, you know, for for insulation reasons, uh, the weather reasons, they, you know, they have limited windows. They're kind of dreary inside. Uh, so I was like, no, I want I want windows and natural light everywhere. So that was.

Blake: [00:40:00] And I can see behind you. You've got this big long window at the top of the wall that's letting in all this light. Yeah.

Eric: [00:40:09] And my desk is as long as the window, so. Wow.

Blake: [00:40:12] So you can, like.

Eric: [00:40:15] A three meter long, three meter long desk? Yeah.

Blake: [00:40:17] What do you keep on your desk? I mean, I imagine you got to be mostly paperless, right?

Eric: [00:40:22] Uh. Uh, I've got my computer in three monitors. I've got a lot of paperwork and some keepsakes. Uh, a photograph of, uh, Shohei Ohtani. Of course, of course, of course.

Blake: [00:40:37] And that was a wild story with his translator.

Eric: [00:40:40] Oh, yeah. Yeah, that was big, big news here.

Blake: [00:40:42] Yeah. I imagine. Yeah, that was it was big news here too, right. Because he plays for the Dodgers.

Eric: [00:40:48] Right. Plays for the Dodgers. Yeah. Yeah.

Blake: [00:40:51] Um, so do you do you work? Uh. Are your calls mostly with people in Japan, or do you also do, like, overseas calls and, like, is that a challenge with time zones and whatnot?

Eric: [00:41:05] No, I do Japan based, um, people. I've had a I've had a couple clients move home and and stay with me for a bit. Uh, but they usually end up going with a US accountant after being home for a while. Yeah. So my my client base is pretty much 100% Japanese residents. Mhm.

Blake: [00:41:24] And are you still building your client base or are you happy with where it's at. You know what.

Eric: [00:41:30] Yes. I'm trying to be uh I'm trying I've had a big increase in US clients this year and it's, uh, it's been tough managing my time. So I'm trying to figure out how to be more efficient and, um, and take on more clients. I don't advertise on word of mouth only. Um, so, uh, yeah, I'm trying to figure out how to become more efficient, and then maybe I'll put the word out more publicly in search of clients. But right now, I'm pretty much at my capacity. Yeah.

Blake: [00:42:06] So you mentioned that the clients that, uh, if they own the form businesses or they have an interest over 10%, they have to do all this reporting PNL balance sheet, other statements.

Eric: [00:42:17] Um, if.

Blake: [00:42:18] It's just you, solo, how do you manage getting all of that from the clients? Do you help them with their accounting, their bookkeeping, or do they, you know, like how do how does that all happen?

Eric: [00:42:31] Uh, most of my clients that I do this reporting for, I am also their Japan side accountant. So I have access to all of their, uh, tax statements and financial statements. So it's usually just a matter of, accessing those and and translating them into the IRS form. Yeah. So that makes it a lot easier if, um, uh, if they were not my clients on the Japan side, then they would have to find and provide all that stuff. And if you're a minority shareholder subject to this reporting, sometimes your company just says, no, we don't want to provide all that information to you just so you can do your taxes, you know? So what do you do.

Blake: [00:43:18] In that situation?

Eric: [00:43:19] You have to. Yeah, the best you can. Fortunately, I haven't come across haven't had to deal with that. But yeah, it's possible. It's a possibility.

Blake: [00:43:29] So do you have plans to hire? Are you just going to stay solo?

Eric: [00:43:36] Uh, I have. So in in the office, in the firm, uh, there is a, um, Chinese girl who joined us a few years ago as an intern, and she stayed on and she is finishing up her US CPA through Washington State. So I am currently training her in the the dark arts of preparing US tax returns. So we'll see how that goes. But yeah, so that will be part of me trying to expand my capacity if she can help me, at least on the easier ones. Yeah.

Blake: [00:44:16] What's the, uh, billing structure or, you know, the fee structure in, uh, in Japan or what are you is it is it a lot hourly? Are people billing hourly or are they billing fixed fees?

Eric: [00:44:30] No, we do uh, the firm does fixed fees based on revenue, um, which tends to pretty, pretty well reflect the amount of work, in my experience. Revenue is a pretty good guideline to know how complex the the work is going to be. And then on the US side, I charge by form basically. Uh, so I have a basic fee that includes the 1040 plus, uh, other thing, other basic things like foreign tax credit. Uh, and then if you have other things, if you need a schedule C or schedule E or, uh, corporate reporting, then I add on and just and it stacks up. And I've been pretty happy with that. I feel I'm getting fairly compensated there. Um, I'll, although I haven't gotten many, many people say, no, you're too expensive. So maybe my fee should be higher, right? If no, if you're not getting any rejections, your fee might be too low, right?

Blake: [00:45:29] That's the common wisdom you hear from coaches who. Yeah. Uh, coach accountants on sales and marketing is if people aren't complaining about your fees, they're not high enough. But, yeah, you know, maybe, I don't know. Maybe it's the Americans come to Japan and then they sort of absorb the culture, and then they're less likely to complain. Maybe. Yeah. Yeah.

Eric: [00:45:50] Well, I think my basic fee, it's in line with what other expat firms charge. Like online, there's some online services. And so I keep my basic fee close to that. And I also feel bad jacking up the basic fee because, uh, I kind of feel like it's unfair for people with basic tax returns that they have to do this filing at all. You know, uh, you know, I'm helping them do this thing that they shouldn't really have to do in the first place, but it needs to be done. Uh, so I try to keep it so that it feels fair, uh, to me and to them.

Blake: [00:46:30] Are there any communities or networks that you tap into for help? Uh, you know, when you you're trying to figure something out, Like is there a community of of expat accountants that that do what you do?

Eric: [00:46:44] There's not a lot of us not in Japan, uh, CPAs anyway. Um, uh, but there there are some online communities. Uh, yeah. Reddit has some, uh, has some tax pro, there's tax pro, there's a expat taxes. Um, there's a Japan finance subreddit that's quite good. Um, and there's some professional. There's some accredited professionals who who post on there. Uh, so yeah, but a lot of times it's you're on your own, um, uh, doing your research, trying to figure it out. Yeah.

Blake: [00:47:22] Does Japan have the same sort of, uh, opportunity for tax planning, tax avoidance that we have in the US with like, s corporations and pass through entities and all that?

Eric: [00:47:37] No, no pass through entities. That's one of the difficult things, um, for expat tax, if they have a pass through in the US, um, Japan considers it to just be a regular old corporation. Uh, so, uh, yeah. So that can get kind of complicated.

Blake: [00:47:58] Uh, so if I'm in Japan and I have my S corp here in Arizona and I'm, I'm send money to myself from the S Corp that is now income.

Eric: [00:48:09] That's a dividend. That's a.

Blake: [00:48:11] Dividend.

Eric: [00:48:12] Yeah. As far as Japan is concerned as far as Japan.

Blake: [00:48:14] And then it gets taxed at the corporate rate.

Eric: [00:48:17] Uh, no. Because it would be a dividend to you as a person. Okay. Um, and then but then you have to you have to figure out, you know, is the, is the S corporation operating in Japan? If so, then it might have to file a separate, uh, corporate tax return.

Blake: [00:48:33] I suppose you could say it is operating in Japan. If I'm the if I'm if you're the if it's.

Eric: [00:48:39] A one man show. Yeah. There's a very good chance that they would consider it what's called a p a permanent establishment, basically a branch of the corporation operating in Japan. Yeah. So we we would usually advise someone to set up a Japanese entity and move their business over in that, in that case, uh, but there could be reasons to operate the S Corp. Maybe the S Corp you're not really active in. And it's it's doing some business that's fully US based. Uh, maybe it's doing real estate or some kind of, uh, business where you're selling things produced in America to American customers. Yeah. So there are reasons. Yeah. Uh.

Blake: [00:49:21] It sounds like there's a lot to think about when you do that. Yeah. Like I'm just imagining if if I went and lived in Japan for a year. Like, how long do you know offhand how long I have to be there to trigger all this?

Eric: [00:49:34] Uh, it's, you know, it's residence based. Um, so it's kind of based on the, you know, the facts of the matter. Uh, if you're there for less than a year, it's kind of presumed that you are not moving your tax base to Japan. Uh, but you might, um. Uh, then the treaty has an exception, uh, for, uh, people in the country for 183 days or less. Uh, where you don't have to report your income unless you're there for over 183 days. Uh, and that's a tax treaty thing. Uh, just to get people off the hook who are here for, you know, business trips and things like that.

Blake: [00:50:15] Yeah. Temporary assignments.

Eric: [00:50:17] Temporary assignments. Yeah.

Blake: [00:50:19] Okay, that's good to know. Okay, 183 days. I'm going to take note of that.

Eric: [00:50:23] Yeah, but, uh, as a US citizen, you can only be here for three months at a time unless you get a visa. Yeah. And the visa tends to indicate that you are moving here, moving your base here. But like I said, it's complicated. It depends a lot on the facts. You know, you move here, but leave your family behind. Uh, maybe you're not a tax resident. You know, it's a lot of details like that.

Blake: [00:50:53] Well, and that's why you, uh. That's why you're there to help, right? Yeah. Because it's not so simple. Yeah. Yeah. Well. Are there any, um. We kind of talked about this at the beginning, but I'd love to dig into it a little more. Are there any, you know, cultural nuances that accountants need to be aware of when they're working internationally?

Eric: [00:51:17] Cultural nuances. Uh, I don't know. Um, I feel I don't know. I feel, based on my experience that the, um, uh, the relationship between tax preparers and the tax office here is a lot less adversarial. Um, so I don't know if that's what you were getting at. Uh, or certainly.

Blake: [00:51:38] Is one of them.

Eric: [00:51:39] Yeah. One of them. Yeah. So if there's an audit, it's a lot more of a, you know, trying to, uh, make everyone happy so that we can get it done as quickly as possible. Um, uh, pushing, pushing back too much could, could, uh, you know, I think in the US, if you, if your client gets audited, you kind of become their advocate and you're, you know, you're trying to push for them as much as possible to get the best result. And, uh, I think in Japan, uh, it's more that you want to get through it as quickly as possible and everyone try to walk away happy. And if you try to push too hard for your client's advantage, that could cause them to go into a more aggressive mode. Uh, and and in the end, you end up worse off than if you had stayed, stayed polite. So. Yeah.

Blake: [00:52:33] So imagine that one of our listeners is a student, a young graduate, and is interested in coming to Japan and, you know, following in your footsteps. Mhm. Um, thinking back, do you have any is there anything you would do differently from how you approached it?

Eric: [00:52:54] Well I would start earlier for sure. I would have spent less time. I don't regret, uh, doing, uh, the first part of my English teaching program. Uh, but I do regret, uh, sticking around doing it. Um, but that was partly because I didn't know what to do next. Uh, so I wish I had figured it out sooner and started sooner on the on the on the tax preparer path. Yeah.

Blake: [00:53:24] Do you have any favorite travel destinations within the country to recommend to me when I plan my trip.

Eric: [00:53:34] Oh, man, that's that's big. Um, I like to go to, uh, the smaller white places. Just hot springs. Uh, and they're all over the country, so, uh, and they're all pretty great, you know? So you Japanese traditional inns, you check in, you put on the the yukata, which is kind of like a kimono, very light fabric kimono. And you just kind of chill out, bathe in the hot springs, have a nice dinner. Uh, and, uh, yeah. So, uh, aside from that, you know, Tokyo is great. It's an obvious destination, but there is. You could you could spend you could do a whole month vacation just in Tokyo and not run out of things to do. Um.

Blake: [00:54:23] I would love to visit an onsen. Do you have a favorite?

Eric: [00:54:26] A favorite? We have a ton here. Um, uh, I had one in Okayama that I really like to visit in a in a small town called Miyako. Uh, and, uh, yeah, but they're all pretty great, so I would recommend just to find one that's on your travel path. Um, and, uh, yeah, I have, uh, I like, um, Okayama has a great town called Kurashiki. Um, for whatever reason, uh, this this city suffered very minimal damage during the war. So they have a great, uh, district where the buildings are all original, uh, from back to the samurai era. Uh, so I really like visiting there. Um, they film a lot of period dramas there. Uh, so. Yeah, Kharovsky is pretty great. If you like to cycle, there's a, you can cycle, uh, across the the sea from the main island to a smaller island called Shikoku. Uh, it takes about a day to cycle across the bridge system there. It's kind of an island hop. Uh, so that's cool.

Blake: [00:55:44] Yeah, that sounds great. Yeah. Well, Eric, thank you so much for taking the time. This hour just flew by. Yeah, yeah, certainly. If our listeners want to connect with you online, where is the best place for them to do that?

Eric: [00:56:00] Uh, well, I mainly go by email, so, uh, it would be, uh, Eric T Azevedo at gmail.com. So right there, it's my name with my middle initial T in it. Eric T Azevedo at gmail.

Blake: [00:56:17] Fantastic. Yeah. Eric, thank you so much for your time today. Great chatting with you and I. I hope that in not too long I will get to meet you in person. Oh, that would be awesome! My wife and I are planning our our Japan trip. We're beginning to plan it, so. Okay.

Eric: [00:56:37] Uh, the the exchange rate is starting to go against you. We.

Blake: [00:56:40] Yeah, that's why we have to do it.

Eric: [00:56:42] We hit 139 this morning. Uh, uh, from the high of 165. So. Yeah. Hurry up.

Blake: [00:56:51] Hopefully in the fall. I would love to do it next year. My favorite.

Eric: [00:56:56] My favorite season in Japan for sure.

Blake: [00:56:58] Yeah. And that's we want to go to Tokyo. Spend a week. We want we could do a week. So we want to go to Tokyo and then go to an onsen and get that. Those kind of two experiences. Yeah.

Eric: [00:57:09] Come up here and I'll point you to a good one.

Blake: [00:57:11] That sounds.

Eric: [00:57:12] Great. And and we have great fall colors up here.

Blake: [00:57:15] So thanks everyone who joined us live. If you want to join an earmark webinar live, go to earmark CPE slash, earmark CPE comm slash webinars, or just download the earmark app and look for the events at the top of the home screen. And, uh, don't forget, you can earn free CPE for listening. And I'm going to play a video right now that reminds you just how to do that. Today's event has ended. To earn CPE, go to earmark app or scan the QR code on the screen. Then log in or create your free account. Search for the course by tapping on the magnifying glass icon on the home screen, and then entering the name of this event. It takes a few days to make the course, so if you're attending this event live, keep an eye out for an email letting you know when the course is available. Pass the quiz to earn your CPE, then tap the button to email yourself a certificate. Stay tuned for more events from earmark. Thanks for joining us and we hope to see you again soon.