@ThomasM125 Thank you for your reply. Upon further research I concluded that my initial judgment was incorrect and I should actually be able to exclude all of my foreign income during the first half of 2020 since I pass the Bona Fide Residence test due to having been outside of US for the whole tax year of 2019. Note that my income in Japan was not through self-employment but rather, through official employment with a company that withheld taxes, insurance, pension, etc. from my paycheck.
The pension was related to only the time I worked in Japan, but I received the payment AFTER moving to US (it was not possible to withdraw that while I was still in Japan). Hence, I am not sure if I can exclude the pension as well based on the Bona Fide test or not, but I should at least be able to get tax credit for it as you mentioned.
The residence tax is based on income in Japan, but it is deducted from salary with a one year delay starting from June of each year. In my case it was deducted from my salary for June 2020 while I was in Japan, but since I was leaving Japan permanently, I had to pay all the rest (July 2020 to May 2021) in one go before leaving.
During the second half of 2020 that I worked remotely for the same company in Japan, I do actually still have a contract with them and I get my salary wired to my bank every month. However, I do not pay any tax or social security or anything else in Japan since I moved to US. Just to confirm, does this really count as self-employment in US for tax purposes? Technically, I am not running my own business, I just work for a company that is not in US.
Finally, do you (or anyone else) have any ideas about California state taxes and foreign income? I live in California now but I had no residence in California (or anywhere else in US, for that matter) before July 2020, but it seems California makes it too difficult to exclude foreign income. I do pass the requirement of the Safe Harbor rule for excluding foreign income for California state taxes; however, that rule seems to apply to people who lived in California and then left. I never lived in California to begin with, so I am not sure if it applies to me. This is of course only for the first half of 2020; I would be paying state taxes for second half either way.
