Sole Proprietor's Tax Return Guide
Understand when, what, and how to file — starting from zero.
From deciding who needs to file, to preparing documents, bookkeeping, filing, and paying — everything sole proprietors and freelancers should know, all in one place.
What is a tax return?
The basics of why it's needed and who does it.
BasicsWho needs to file
A decision flow for a sole proprietor's filing obligation.
CheckBlue-form vs. white-form return
Which should you choose? Differences in deduction and effort.
Tax savingPreparing the documents
What to gather, by category, in checklist form.
PrepFiling steps (step by step)
From bookkeeping to filing, in order.
StepsHow to use e-Tax (e-filing)
Steps to file on a smartphone or a PC.
e-TaxEasily missed income deductions
A checklist of deductions people often fail to claim.
Tax savingCommon mistakes and fixes
From missing entries and late filing to amended returns.
CautionWhat is a tax return?
A tax return (kakutei shinkoku) is the procedure of calculating your income for the year from January 1 to December 31, and reporting and paying the income tax you owe yourself. For company employees, the employer handles this through the year-end adjustment, but sole proprietors and freelancers must do it themselves.
Every year, February 16 to March 15
(if it falls on a weekend or holiday, the next business day)
The income (≒ profit) for the previous January 1 to December 31
The tax office with jurisdiction over your place of tax payment (your address)
or file online via e-Tax
Income tax is due by March 15
Direct debit (account transfer) is mid-April
Jan–Dec
from Jan
Jan–Feb
Feb–Mar
by 3/15
(blue-form special, basic, social insurance, etc.)
* The income tax rate is 5–45% depending on taxable income (progressive taxation). On top of this, residence tax of 10% is levied separately.
Who needs to file
Sole proprietors and freelancers generally need to file a tax return, but the situation differs if your income is low or if it's combined with employment income. Check with the flow below.
over ¥580,000?
Income tax applies to the amount exceeding the basic deduction (¥580,000), so a return is required.
Even if income tax is zero, a residence tax return may be required. Also, you can file if you want to receive a refund.
List of cases that require filing
The basic pattern for sole proprietors and freelancers. If business income = sales − expenses exceeds ¥580,000, a return is required.
Even if your main job's year-end adjustment is done, a return is required if side-business income or miscellaneous income exceeds ¥200,000.
Rental income and gains from selling land, buildings, or stocks are also added to your income.
When you want to apply the medical expense deduction, mortgage deduction, or donation deduction (furusato nozei). Filing lets you receive a refund.
With a blue-form return, you can carry a business loss forward for three years (carryover deduction of net losses). Filing is required to receive this benefit.
Even if the tax amount is zero, filing gets you an income certificate. This is needed in situations that require proof of income, such as mortgages, nursery school admission screening, and various subsidy applications.
Blue-form return vs. white-form return
There are two kinds of tax return: the blue-form return and the white-form return. For sole proprietors, we strongly recommend the blue-form return — it takes more effort but saves overwhelmingly more tax.
| Comparison item | Blue-form return | White-form return |
|---|---|---|
| Prior notification | Required (application for approval of blue-form return) Within 2 months of starting business, or by December 31 of the prior year |
Not required |
| Type of bookkeeping | Double-entry bookkeeping (¥650,000 deduction) or simple bookkeeping (¥100,000 deduction) |
Single-entry bookkeeping (income statement form) |
| Special deduction | Up to ¥650,000 (when using e-Tax) | ¥0 (no deduction) |
| Loss carryover | Can carry forward for 3 years | Not possible |
| Salary to family | Can be fully expensed as salary to a blue-form full-time family employee | Capped (only a deduction of ¥860,000 for a spouse, ¥500,000 for others) |
| Equipment under ¥300,000 | Can be expensed in a lump sum (special rule for small-amount depreciation) | Depreciation is generally required |
| Effort | Somewhat more (greatly reduced with accounting software) | Relatively simple |
→ about ¥91,500 in tax savings!
- Submit the "application for approval of blue-form return" to the tax office (within 2 months of starting business, or by March 15 of that year)
- Set up accounting software (freee, Money Forward, Yayoi, etc.)
- Link your bank account and credit card to automatically import daily transactions
- At year-end, enter depreciation and inventory, and prepare the blue-form return financial statements
- File via e-Tax (e-filing is required to apply the ¥650,000 deduction)
Preparing the documents
Preparing your tax return starts with gathering documents from year-end into January. Use the checklist below and get them ready early.
① Documents related to the business
Output from accounting software. Blue-form = profit and loss statement + balance sheet. White-form = income statement form only.
No need to submit, but keep them in case of a tax audit. Electronic data (scans) are also fine.
Arrive from clients who withheld tax. No need to submit, but you must check them to enter the withheld tax amount on your return.
② Documents related to deductions
Mailed by the Japan Pension Service every October to November. For National Health Insurance, check your municipality's payment history.
If you are enrolled in the Small Business Mutual Aid or iDeCo, it is sent around November.
Arrives from each insurance company in October to November. Up to ¥40,000 deduction for each of the 3 categories: life, nursing-care medical, and personal pension.
If you have medical expenses of over ¥100,000 a year (or over 5% of income). The health insurance association's notice lets you check them all at once.
Receipts (donation receipt certificates) sent by each municipality. Needed if you do not use the one-stop exception.
From the second year of the mortgage deduction onward, file it together with the year-end balance certificate that arrives from the tax office.
③ Identity verification documents
E-filing requires a My Number Card and a card reader (or a smartphone).
If you pay tax by account transfer, have your bank account number and financial institution code ready.
Saving receipts as PDFs with your smartphone camera or a scanner saves you the trouble of searching for them at filing time. If you meet the requirements of the Electronic Books Preservation Act (resolution, time stamp, etc.), you no longer need to keep paper copies.
Filing steps (step by step)
Here are the steps to get through your tax return smoothly, along with a year-round schedule. The biggest tip is to avoid "panicking once the filing period arrives."
Enter sales and expenses into accounting software (freee, Money Forward, etc.) as they occur. If you link your bank account and credit card, most entries are made automatically.
From year-end into January, deduction certificates for the National Pension, life insurance premium deduction certificates, payment records from clients, and so on arrive. As they come in, gather them into a single file right away.
Close your books for the year and prepare the financial statements. If you use accounting software, do the following on the "year-end adjustment" screen.
Assets of ¥300,000 or more, such as PCs, machinery, and vehicles, are expensed each year using the straight-line or declining-balance method. Using the blue-form under-¥300,000 special rule lets you expense them in a lump sum.
Check the value of inventory as of the end of December and record it as "closing inventory." Note that the more inventory you have, the smaller your expenses (cost of sales) become.
Expenses paid in December but attributable to the following year (e.g., paying rent for January–March in December) are treated as "prepaid expenses."
Accurately record accounts receivable billed but uncollected at year-end, and unpaid purchase costs.
Prepare your return using the National Tax Agency's "Tax Return Preparation Corner" (e-Tax) or your accounting software. Follow the on-screen instructions and it calculates automatically.
The main sheet where you enter the totals for income, income deductions, and tax.
Enter the details of each deduction (social insurance premiums, life insurance premiums, etc.).
The profit and loss statement (pages 1–2) and the balance sheet (pages 3–4). Double-entry bookkeeping requires the balance sheet too.
There are three ways to file. e-Tax (e-filing) is the most recommended.
- Can file 24 hours a day, 365 days a year
- Completed with a My Number Card + smartphone
- The blue-form special deduction becomes ¥650,000 (¥550,000 on paper)
- Faster refunds (usually within 3 weeks)
- Can omit attaching deduction certificates
- Postmark by March 15 is valid
- Enclose the originals of deduction certificates, etc.
- Always keep a copy of your return for yourself
- Go early, as it tends to be crowded
- You can file while checking at the filing consultation counter
- Some offices open on Sundays during the period
- Pay by March 15
- Direct debit (account transfer) is deducted in mid-April
- Direct pay, convenience store, and credit card payment are also possible
- With e-Tax, usually transferred within 3 weeks
- Paper filing can take 1–2 months
- Enter the destination account accurately on your return
How to use e-Tax (e-filing)
e-Tax lets you complete your return using only a smartphone. Smartphone filing with a My Number Card is the simplest method.
Steps to file on a smartphone
Available for both iOS and Android. Because it uses the My Number Card's NFC reading function, you need a compatible smartphone (almost all recent smartphones are compatible).
Set up automatic linking of deduction certificates (National Pension, private insurance, etc.). Linking in advance greatly reduces data entry.
Start from the National Tax Agency's site or Mynaportal's "tax return" menu. Select "use a smartphone."
Hold the card to your smartphone to read the IC chip, and enter the password for the user certificate electronic certificate (a 4-digit number).
Follow the on-screen instructions to enter income, expenses, and deductions. Linking the financial statement data prepared in accounting software (in XML format) lets you skip data entry. Finally, press the submit button and you're done.
| Filing method | What you need | Blue-form special deduction | Difficulty |
|---|---|---|---|
| Smartphone (My Number Card) | My Number Card, NFC-compatible smartphone | ¥650,000 | ★★☆ |
| PC (My Number Card) | My Number Card, IC card reader, PC | ¥650,000 | ★★★ |
| PC (ID/password method) | ID and password obtained in advance at the tax office | ¥650,000 | ★★☆ |
| Paper (mail/counter) | Printout, original deduction certificates | ¥550,000 | ★☆☆ |
Accounting software such as freee, Money Forward, and Yayoi has a function to send the financial statements you prepared directly to e-Tax. This saves you from separately entering data into the return preparation corner, so if you use accounting software, taking advantage of that function is the smoothest approach.
Easily missed income deductions
On a tax return, in addition to booking expenses, you can apply many income deductions. Missing a deduction means paying extra tax, so check the following carefully.
The full amount of National Pension and National Health Insurance premiums. Also deductible if you paid for family members together.
The full amount of Small Business Mutual Aid and iDeCo contributions. The strongest tax-saving tool available to sole proprietors.
Deductible if annual medical expenses exceed ¥100,000 (or that amount when it exceeds 5% of income). Family members' expenses can be combined.
Up to ¥40,000 each for the 3 types — life, nursing-care medical, and personal pension — for a total of up to ¥120,000.
The full amount of earthquake insurance premiums (cap of ¥50,000). Even renters qualify if their household goods insurance has an earthquake rider.
Sole proprietors cannot use the one-stop exception, so they need to receive the deduction on their tax return.
When you have dependents in the same household. If your spouse's income is ¥580,000 or less, the spouse deduction (¥380,000) applies.
Applies when you or a dependent has a disability, or when you qualify as a single parent or widow(er).
The portion of OTC medicine (over-the-counter drug) purchases exceeding ¥12,000 (cap of ¥88,000). Chosen as an alternative to the medical expense deduction.
Common mistakes and fixes
Here are the points where many people slip up on their tax return. Knowing them in advance helps you avoid trouble.
If you leave it unfiled, the additional tax for non-filing (5–20%) and delinquent tax (annual 2–14.6%) are added to the tax originally due.
File as soon as you notice (late return). If you file voluntarily, the additional tax is reduced to 5%. Once the tax office points it out, the additional tax increases.
When you reported too little income (paid too little tax), or forgot to claim a deduction (paid too much tax).
If the tax increases, submit an "amended return." If the tax decreases (overpaid), submit a "request for correction" within 5 years of the filing deadline to receive a refund.
If you book expenses unrelated to the business, they may be disallowed in a tax audit and result in a penalty. Conversely, missing expenses means paying extra tax.
Only book expenses whose connection to the business you can clearly establish. For gray-area spending, note the "business purpose" on the receipt. For household-use apportionment, record a reasonable basis (area ratio, time ratio).
If a client withheld tax (10.21% is deducted), you cannot receive a refund unless you enter that amount on your return.
Total the withheld tax from payment records or your accounting books, and enter it accurately in the "withheld tax amount" field on your return. Entering it refunds the tax you overpaid.
Even if you meant to file blue-form, without submitting the application for approval you are treated as a white-form filer and cannot receive the ¥650,000 deduction.
File this year's return as white-form, and to switch to blue-form from next year, submit the application for approval to the tax office by March 15. If you have just started your business, the deadline is within 2 months of starting.
If the prior year's income tax was ¥150,000 or more, you are obligated to make "estimated tax prepayments" in July and November. Forgetting to pay incurs delinquent tax.
The tax office sends a "notice of estimated tax prepayment" in June, so don't miss it. If your income has dropped significantly, you can reduce it by submitting an "application to reduce estimated tax prepayment."
• Collect payment records and deduction certificates
• Start closing the books
• Start preparing the tax return
• From 2/16, filing acceptance begins
• 3/15 tax return and payment deadline
• Deadline to apply for next year's blue-form return (3/15)
• Direct debit withdrawal (mid-April)
• Residence tax determination notice (May–June)
• Residence tax payment begins (from June)
• Estimated tax prepayment notice arrives
• Estimated tax prepayment, 1st installment (by 7/31)
• Deduction certificates start to arrive
• Estimated tax prepayment, 2nd installment (by 11/30)
• Deadline to submit the application for approval of blue-form return (for next year)
• Organize the year's receipts and books
Learn more with related columns and pages
Blue-form vs. white-form return
The ¥650,000 deduction requirements, loss carryover, family employee salary, and application deadlines.
10 expense gray areas
Sorting out items where it's hard to judge whether they can be expensed.
Invoices and tax-exempt businesses
The registration decision, the 20%/30% special rules, and the small-amount exception, with the latest information.
Expense list (details)
Check the approach to expenses by account category, all in one place.
FAQ
When is the tax return period?
As a rule, February 16 to March 15 of the following year. Payment is also due March 15 (mid-April for direct debit). A refund claim can be filed even before February 15, and you can go back up to 5 years.
Should I file blue-form or white-form?
If you have business income, the blue-form return is advantageous, with benefits such as a deduction of up to ¥650,000, loss carryover, and family employee salary. Blue-form requires prior approval (by March 15 of that year / within 2 months for a new business).
Should I file even at a loss?
With a blue-form return you can carry a net loss forward for 3 years, so filing even at a loss lets you offset it against future profits. Filing is also useful for the calculation of National Health Insurance premiums.
Sources and official information
This article is based on the following official information. Rules may be revised. Check the latest information on each official site.
- National Tax Agency, Tax Answer No.2020 Tax Return (in Japanese)
- National Tax Agency, Tax Answer No.2070 Blue-Form Return System (in Japanese)
- National Tax Agency, Tax Return Preparation Corner (in Japanese)
- e-Tax (National Tax Electronic Filing and Payment System) (in Japanese)
* The content of this article is for informational purposes and is not tax or legal advice. For individual tax decisions, consult your local tax office or a licensed tax accountant (zeirishi).