Tax Guide for Sole Proprietors
The tax-saving essentials that freelancers and the self-employed need, organized clearly.
From the blue-form return, claiming business expenses and consumption tax to social insurance, we explain how to make full use of your tax return to cut your tax burden wisely.
Blue-form special deduction
Save big with a deduction of up to ¥650,000. The key points on filing and bookkeeping.
EssentialClaiming and apportioning expenses
Book business-related costs correctly. We also explain the idea of household apportionment.
Tax savingSmall Enterprise Mutual Aid & iDeCo
The strongest combo of retirement planning and tax saving, with higher limits than for employees.
RetirementConsumption tax & the invoice system
Judging your tax liability and the criteria for deciding on invoice registration.
Consumption taxNational Health Insurance & tax saving
Use the mechanism where lower income also means lower premiums.
Social insuranceThe tax-return process
A summary of the annual schedule and the documents you need.
FilingBlue-form special deduction
One of the largest deductions a sole proprietor can claim on a tax return is the blue-form special deduction. Simply by filing an application in advance and keeping your books by double-entry bookkeeping, you can subtract up to ¥650,000 from your business income. For details such as the requirements for ¥650,000, ¥550,000 and ¥100,000, loss carryforward and salaries for family employees, see Blue-form vs. white-form returns.
Simplified bookkeeping
Double-entry (paper filing)
Double-entry + e-Tax
Other benefits of the blue-form return
A loss in a year in the red can be carried forward for the next three years and deducted from income.
Salaries paid to family members can be booked as expenses. The white-form return only allows a "deduction" capped at ¥500,000–¥860,000.
Equipment costing under ¥300,000 can be expensed in full at once (up to ¥3,000,000 per year in total).
→ A special rule for depreciation
Submit the "Application for Approval of Blue-Form Filing" to the tax office within 2 months of starting your business. Using accounting software (freee, Money Forward, etc.) handles double-entry bookkeeping almost automatically.
※ You then also subtract the ¥580,000 basic deduction, the social insurance premium deduction and others from business income before applying the tax rate.
Claiming and apportioning expenses
Spending related to your business can be subtracted from revenue as "necessary expenses." If you use your home as a workplace, household apportionment lets you book part of your rent and utilities as expenses.
- Purchases and materials
- Outsourcing and subcontracting fees
- Office rent and utilities
- PC, smartphone and peripherals
- Communication costs (internet, phone)
- Books, seminars and study costs
- Advertising costs
- Entertainment and meeting costs with clients
- Tax accountant and lawyer fees
- Business casualty insurance premiums
- Living costs and food (non-business)
- Income tax, residence tax and fines
- Salaries to family (capped on the white-form return)
- Private travel costs
- Hobby goods (when not business-related)
- Personal gym membership and lessons
- National Pension and National Health Insurance (deducted separately as the social insurance premium deduction)
How household apportionment works
30%
70%
※ Keep records so you can explain the basis for the business-use ratio (floor-area ratio, time ratio, etc.).
※ A reasonable ratio will be accepted even in a tax audit. Ratios that are too high risk being denied.
Small Enterprise Mutual Aid & iDeCo
Unlike employees, sole proprietors get no retirement allowance. Combining the Small Enterprise Mutual Aid and iDeCo lets you build up retirement assets while saving tax right now. A key feature is that the limits are higher than for employees, so the tax-saving effect is greater.
| Small Enterprise Mutual Aid | iDeCo (individual type) | |
|---|---|---|
| Monthly limit | ¥70,000 | ¥68,000 (combined with the National Pension Fund) |
| Annual limit | ¥840,000 | ¥816,000 |
| Type of deduction | Small enterprise mutual aid premium deduction (full amount) | Small enterprise mutual aid premium deduction (full amount) |
| Receiving benefits | On closing the business or retirement (favorably treated as retirement income) | From age 60 (retirement income or public pension deduction) |
| Early cancellation | Voluntary cancellation risks a loss of principal | In principle, no withdrawal until age 60 |
| Who it suits | Those who want to reliably save in place of a retirement allowance | Those who want to grow assets through investment |
Annual benefit if you use both to the full
※ The income tax rate is 5–45% depending on taxable income.
Consumption tax & the invoice system
Once your revenue two years prior exceeds ¥10 million, you must file and pay consumption tax. Also, under the invoice system (qualified invoice retention method) that started in October 2023, even tax-exempt businesses must decide whether to register.
two years ago?
No consumption tax filing or payment needed
Consumption tax filing and payment required
General method vs. simplified method
| General method | Simplified method | |
|---|---|---|
| Conditions | No restrictions | Sales two years prior of ¥50 million or less |
| Calculation | Consumption tax on sales − consumption tax on purchases | Consumption tax on sales × (1 − deemed purchase rate) |
| Bookkeeping | Track the consumption tax you paid in detail | Just tracking sales is fine |
| Who it suits | Industries with many expenses and purchases | Service businesses and others with few expenses |
For your counterparty to claim a purchase tax credit for consumption tax, they need a qualified invoice bearing a registration number. If you stay a tax-exempt business, your clients cannot claim the credit, so they may become reluctant to deal with you.
- 20% special rule (until September 2026): If you become a taxable business upon invoice registration, you can reduce your tax to 20% of the consumption tax on sales (for individuals, through the return for 2026).
- 30% special rule (2027–2028): After the 20% special rule ends, a measure setting sole proprietors' tax at 30% of the consumption tax on sales is planned to be created in the FY2026 reform (check the National Tax Agency for the latest).
- Small-amount special rule: Purchases under ¥10,000 (tax included) qualify for a purchase tax credit without retaining an invoice (until September 2029; for businesses with sales of ¥100 million or less, etc.).
- Transitional measures: Purchases from unregistered businesses are eligible for an 80% credit until September 2026 and a 50% credit until September 2029.
For how to decide on registration and choose a taxation method, see The invoice system and tax-exempt businesses.
※ For the simplified method: tax payable ＝ consumption tax on sales × (1 − deemed purchase rate). The deemed purchase rate is 40–90% depending on the industry.
National Health Insurance & tax saving
Premiums for the National Health Insurance that sole proprietors join are calculated based on the previous year's income. Because lower income means lower premiums, tax saving through booking expenses and various deductions directly cuts your premiums too.
The rate varies by municipality (guide: 8–11%)
(e.g. around ¥47,000/year)
Premium guide by income (Tokyo, single person)
| Business income | Annual premium (approx.) | Monthly equivalent |
|---|---|---|
| ¥1 million | approx. ¥100,000 | approx. ¥8,300 |
| ¥2 million | approx. ¥190,000 | approx. ¥15,800 |
| ¥3 million | approx. ¥280,000 | approx. ¥23,300 |
| ¥4 million | approx. ¥370,000 | approx. ¥30,800 |
| ¥5 million | approx. ¥460,000 | approx. ¥38,300 |
| ¥6 million or more | cap approx. ¥860,000 (medical portion) | capped |
※ The total premium including the long-term care portion and support portion is higher than the above. It varies greatly by municipality.
National Health Insurance and National Pension premiums you pay can be fully deducted from income as the social insurance premium deduction. Be sure to claim them on your tax return. The National Pension is about ¥198,480/year (FY2024).
※ Booking expenses correctly to lower your income directly cuts your premiums too.
The tax-return process
Sole proprietors must file a tax return each year between February 16 and March 15. Keeping your books throughout the year means you won't scramble during the filing period.
Record sales and expenses as they occur. Keep receipts and slips (for 7 years).
Clients send payment records for amounts withheld at source (submission is optional, but you must check them).
Reflect depreciation and inventory. Prepare the blue-form financial statements (or the statement of income and expenses).
File via e-Tax (online), at the tax office counter, or by mail.
Any refund is transferred to your designated account. Payment is due by March 15 (mid-April for account-transfer payment).
Main documents needed for a tax return
Profit and loss statement, balance sheet (for double-entry bookkeeping)
My Number Card, or notification card + ID
Proof of National Pension and National Health Insurance paid
Small enterprise mutual aid premium payment certificate
Mailed by the insurer around November
If you have the mortgage loan credit
Filing via e-Tax applies the ¥650,000 blue-form special deduction (paper filing gives ¥550,000). With a My Number Card you can even file from your smartphone, and refunds come faster (usually within 3 weeks).
Learn more in related articles and pages
Blue-form vs. white-form returns
Requirements for the ¥650,000 deduction, loss carryforward, family salaries and application deadlines.
10 gray-zone expenses
Sorting out cases where it's hard to judge whether something can be an expense.
Invoices & tax-exempt businesses
Deciding on registration, plus the 20%/30% and small-amount special rules with the latest info.
The tax-saving effect of iDeCo
Premiums are fully deductible from income, and sole proprietors have higher limits.
Expense list (detailed guide)
Check the thinking on expenses by account category all in one place.
When to incorporate
Consider it as income rises. A guide to the break-even point of incorporating.
Small Enterprise Mutual Aid
A retirement-allowance system for sole proprietors where premiums are fully deductible from income.
Calculating National Health Insurance
The income-based and per-capita portions, the ¥1.09 million cap, and tips to reduce it.
The basics of accounts and journal entries
A list of common accounts and practical rules for when you're unsure.
The Electronic Books Preservation Act
Storing electronic transaction data, mandatory from 2024. So what do you actually need to do?
Individual enterprise tax
A prefectural tax on income over ¥2.9 million. Rates by industry and the August payment.
Estimated tax prepayment
A prepayment of income tax notified in June. Reduction requests are due by July 15.
Salary for blue-form family employees
Booking family salaries as expenses: requirements, filing and setting a reasonable amount.
FAQ
What do I file first when I start a business?
Submit the "notification of business start" to the tax office, and if you want to file blue-form, the "Application for Approval of Blue-Form Filing." The application is due within 2 months of starting your business (or by March 15 of that year if you are already in business).
How do I get the ¥650,000 blue-form deduction?
Keep your books by double-entry bookkeeping, submit the balance sheet and profit and loss statement on time, and either file electronically via e-Tax or keep qualifying electronic books; then it becomes ¥650,000 (¥550,000 if you don't go electronic).
Should I register for invoices even with sales of ¥10 million or less?
If your clients are mainly taxable businesses, consider registering; if they are mainly general consumers, the impact is often small. Registering makes you a taxable business with a duty to pay consumption tax. Also check burden-easing measures such as the 20% special rule (until September 2026).
How far are expenses allowed?
Expenses are the spending necessary to earn your business revenue. For a combined home and office, apportion rent, utilities and communication costs by the business-use ratio. Keep records so you can explain the basis for the ratio.
Sources / official information
This article is based on the official information below. Rules may be revised; please check each official site for the latest details.
- National Tax Agency — Tax Answer No.2020 Filing a tax return (in Japanese)
- National Tax Agency — Tax Answer No.2070 The blue-form filing system (in Japanese)
- National Tax Agency — Tax Answer (common tax questions) (in Japanese)
※ This article is for general information only and is not tax or legal advice. For individual tax matters, consult your local tax office or a licensed tax accountant (zeirishi).