To all sole proprietors, the tax return filing season is finally approaching in February.
The deadline for income tax returns is March 15.
If you are also planning to file a consumption tax return, the deadline for filing consumption tax returns is April 1.

Let’s start preparing for your upcoming tax return little by little from now on.

We will explain some of the things you need to do now.

1. Make sure that your monthly sales are correct.

In addition to cash sales, check to see if there are any sales transferred to your bank account that you may have missed recording.
Check to see if any sales were irregularly deposited into the household account.

Even if the sales were received this year, if the work was completed in 2023, as a general rule, they are sales for the year 2023.

Income for which a “payroll withholding slip”（給与所得の源泉徴収票) is issued by the payer is not business income.
As employment income, you must calculate your expenses separately.

2. Check if any expenses have been omitted.

Are there any receipts for household items mixed in with business items?
Check your bank book to see if there are any transfers that are eligible for expenses.
For expenses paid on credit in December, it is better to check the credit payment statement sent in January or February of this year to see if there are any expenses that have not been recorded.

3. When you purchase something for 100,000 yen or more, you cannot record the cost of the purchase at one time.

In that case, you must depreciate the amount paid by posting a portion of the payment each year over the useful life of the item.

However, blue filers can expense the entire amount of an asset worth less than ¥300,000 by submitting a statement (limited to an acquisition cost of up to ¥3,000,000 for that year).

4. Review your household expenses

This is a surprisingly large tax-saving measure that can be taken during the fiscal year.

For example, if you use your home as a place of business, you can expense a portion of the rent as a percentage of the floor space of the area you use.

If you own your home, you can also expense a portion of your property taxes and mortgage interest at that business rate.
In that case, you can also expense a portion of utility expenses, but you must reasonably estimate the percentage of that use.
You can estimate the number of hours per day you work in the room.

If you use your own car for work, depreciation, car insurance, taxes, repairs, vehicle inspections, and gasoline expenses can all be expensed based on the percentage of use.

You should also measure the mileage you use for work for a week or so to determine a reasonable percentage of use, and keep documentation of the evidence.

If the house, car, or other fixed asset is owned by a family member and the family member pays for it, you can still expense it in the same way if you use it for your business.

5. Organize your documentation to prove your income tax deductions(所得控除　Shotokukojo)

A. If you have life insurance or earthquake insurance, your insurance company should have sent you a certificate of deduction within the last year.
In order to claim the deduction for life insurance premiums or earthquake insurance premiums, you must, in principle, attach the certificate to your tax return.
If you file your tax return online, you only need to send the above-mentioned certificates, but you need to keep the certificates and other documents for 5 years from 3/15.

B. If you paid National Health Insurance premiums, it is eligible for deduction of social insurance premiums.
Check the amount on the annual payment notice sent from the city office around January.
If you do not have that document, ask the city office for the annual payment amount.
For National Health Insurance premiums, you do not need to attach a certificate to your tax return.　

C. If you paid National Pension Insurance premiums, they are also subject to the deduction for social insurance premiums.
To receive that deduction, you need the certificate for deduction of National Pension Insurance premiums (国民年金保険料控除証明書Kokuminnennkin-hokenryo-koujoshomeisho) that was sent to your home between October and November of last year.
You have to attach it to your tax return.

If you file your tax return online, you only need to send that information for the above certificate, but you need to keep the certificate and other documents for 5 years from 3/15.

D. If your spouse had employment income, check your spouse’s Withholding slip for employment income(給与所得の源泉徴収票　Kyuyoshotoku-no-gensenshoshuhyo).
Employers are supposed to deliver this document to their employees by the end of January.

If your total income is ¥9 million or less and your spouse’s wages are ¥1,030,000 or less, you are entitled to the spousal deduction (¥380,000).

If your total income is less than 9 million yen and your spouse’s salary exceeds 1,030,000 yen but less than 2,016,000 yen, you are entitled to the spouse’s special exemption (20,000-380,000 yen).

This document does not need to be attached to your tax return, but I recommend that you keep it for 5 years as evidence.

E. If you live with a parent or a child over the age of 16, check their income.
If their net income (income minus expenses) is less than ¥480,000, they are eligible for the dependent care deduction.
For example.
If their income is salary and the annual total of their income is ¥1,030,000 or less, you can take the deduction for dependents (¥380,000 per person).

Especially if they receive salaries from more than one employer, be sure to check if the total amount is ¥1,030,000 or less.

The salary information is sent to the tax office by the employer through the city office, etc.
If their total income exceeds 1,030,000 yen, you may be liable for additional taxes from the tax office after more than one year has passed.

F. Organize your medical expense receipts.

If the amount you incurred for medical expenses for you and your family exceeds 100,000 yen, you may be entitled to a medical deduction.
 (Amounts covered by insurance or other sources must be deducted from the total amount paid.)
Generally, hospitals do not reissue receipts.
You should be sure to secure a receipt for each medical expense you pay.

If you received medical treatment abroad, you are still eligible for the medical expense deduction if you can obtain receipts from the hospital.
The amount must be converted to yen at the rate of the day you made the payment.

For the deduction of medical expenses, you must prepare a “Statement of deduction for medical expenses” (医療費控除の明細書Iryohikojo-no-meisaisho) based on the receipts and attach it to your tax return.
The receipts themselves do not need to be attached to your tax return.
If you file your tax return online, it is sufficient to enter the details in the “statement of deduction for medical expenses” section.
However, you are obliged to keep the receipts themselves for 5 years.

6. For those who have become a taxable business for consumption tax purposes

If you have obtained an invoice registration number and have become a business subject to consumption tax（消費税の課税事業者, Shohizei kazei jigyosha） from October, you must be even more careful in preserving receipts for expenses as well as invoices for sales.

As a general rule, if you do not keep receipts for expenses, etc., you will not be able to deduct consumption tax on those expenses (even if you can verify the expenditure with other documentation).
You will pay more consumption tax.

For example, if you paid with a credit card, you cannot deduct consumption tax on the credit card statement.

However, if you were originally a Tax-exempt business（消費税の免税事業者, Shohizei menzei jigyosha）and became a Business subject to consumption tax（消費税の課税事業者, Shohizei kazei jigyosha）by obtaining an invoice registration number, a special exception applies.
In that case, you only need to pay 20% of the consumption tax on your sales as long as you keep your sales invoices, etc. In this case, it is OK even if you do not keep enough receipts for your expenses.

There you have it.

If you have gone over what I have explained so far, you will be well on your way to a tax return with plenty of time to spare.
If you are still not recording your income, collecting receipts, etc. in batches, and compiling them once a year to file your tax return, then don’t do that anymore.
Sole proprietors can apply for a blue tax return if they meet the requirements of proper documentation and proper record keeping.
Once you become a blue filer, you can broaden your avenues for tax savings.

It is necessary to check the financial status of your business at least once a month by totaling your sales and expenses, not only for tax purposes, but also to maintain your livelihood and to promote the development and expansion of your business.

Better safe than sorry.
So, let’s get to work on your tax return!

I am a tax accountant in Nagoya.
If you need help with accounting or taxation issues, please contact me.

Certified Tax accountant　 Motohiko Aoyama
e₋mail: bemyself8314@gmail.com