Yes, I would use number 3 to report your foreign pension amount. Step 1, in my opinion, is nt a viable approach and may have its limitations with efiling. Approach 2 is totally wrong because this is not foreign earned income.
Approach 3 is not perfect but is the better alternative than the first two. in fact, this is my recommended choice for anyone reporting foreign pension income.
One additional note, if you paid foreign tax to Japan, you may be able to claim a foreign tax credit. Here are the steps.
- Open Turbo Tax
- Go to federal>deductions and credits>estimate and other taxes paid
- Foreign taxes >start
- Start answering questions. Make sure you answer the question correctly about if this is the first year you are making the simplified election
- Answer the questions in the next screens until you reach a screen that talks about income type. This will be a passive category of income.
- Next screen is where you add the country your foreign income was paid in.
- Next screen will ask you what your source income taxed in that country. Here you will allocate income taxed while you were in that country.
- You will continue answering questions until you get to a screen that says foreign taxes paid to XXXX.
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