* disclaimer: This article is for information purposes only, and does not guarantee that your taxes will be ready for filing in February. It intends to help you organize your accounts for easier processing by a CPA or tax consultant before tax filing season begins.
It’s only summer and you don’t really want to think about next year’s taxes right? Well if you applied for Aoiro Shinkoku, now’s a good time to catch up on your bookkeeping. If you don’t know what Aoiro Shinkoku is or whether you qualify or not, read through Louise’s article linked below.
Quick history lesson: After WW2, the GHQ told the Japanese government to get rid of the gensen choshu (tax withholding) policy and instead set up a method for self-employed persons to file their taxes. Entrepreneurs who accurately declared their income and taxes with ledgers would be given incentives in the form of special deductions. This policy was named Aoiro Shinkoku (Blue Return) because the color blue reminds the Japanese of a “clear color like the blue sky”.
If you applied for Aoiro Shinkoku status when you filed your taxes this year, you will need to prepare several forms to get the special deductions. You could just hand over your big box of receipts and a copy of your bank book to your CPA, but are a few things you can do to make his or her job easier, and maybe lower your bill.
The tax office does not like donburi kanjo (sloppy accounting). This is like having a cookie pot into which all your money goes in, and your hand has free access to spend the money inside without accounting for it. It’s simple to set up an accounting system that the tax office will accept.
Ideally, you will have one bank book that covers your work. All payments are made into and from this account. If you already have a bank account into which you are receiving payments in and paying for things from, use that. If you have an account that you’re already making many personal expenses from, you might want to open a new account.
Now, if you take out money from this account for personal use, it can be called an “Entrepreneur Expense”. Is your credit card linked to your bank account, and do you make personal purchases on that credit card? Don’t worry. Just list any personal expenses as an “Entrepreneur Expense”.
In addition to this bank account, you need a cash till (like a cash register). Use this till to declare cash revenue and for daily expenses. When you are first starting out, begin with an amount you think will cover a month’s expense, and try to keep it from dipping into the red. When you need more cash money, take some out of your bank account and put it in the cash till. The amount left in your till at the end of the year will be carried over to the next year.
With Aoiro Shinkoku, you can get a special ¥100,000 deduction if you keep a simple ledger that just lists revenue and expenses. You can get a special ¥650,000 deduction if you use double-entry bookkeeping. This means preparing spreadsheets that shows your revenue, expenditures and your cash balance. Sound difficult? Once you get the hang of it, it’s actually not so hard as long as you keep your books up-to-date.
With double-entry bookkeeping, all receipts need to be categorized into several categories and listed in a spreadsheet format. You can buy special software in Japanese for this, or you can use your regular spreadsheet software.
You will need one spreadsheet for cash expenditures and another for expenditures paid from your bank. Sort your receipts in chronological order. Next, create headings for the following items (see below for definitions, and the bottom page for spreadsheet examples):
Date / Item / Revenue / Entrepreneur Expense / Utilities / Transportation / Communication / Consumables / Miscellaneous / Books & Newspaper / Entertainment / Meetings / Welfare / Rent / Taxes
Date 日付: Date on the receipt
Item 勘定科目: Name of shop, what did you spend the money on (i.e., Maruzen – book)
Revenue 収入: All payments received should be entered in this column. For your cash spreadsheet, enter any cash payments received as well as money taken from your bank book for your cash till.
Entrepreneur Expenses 事業主貸: Enter any money you’ve taken out for your personal use. It is often recommended to take out a “monthly salary” instead of dipping your hand into the account each time you need money. Other items under this heading could include health insurance, pension payments, money for personal trips home, etc.
Utilities 光熱費: Gas, water, electricity
Transportation 交通費: Train, bus, taxi, airfare, gasoline, parking
Communication 通信費: Internet, phone, postage
Consumables 消耗品: Office supplies, equipment costing less than ¥100,000, computer related stuff
Miscellaneous 雑費: Banking fees, items that don’t fall under consumables, toilet paper for the office, etc.
Books & Newspapers 図書新聞: The title pretty much says it. Books, magazines, newspapers, reading materials
Entertainment 接待費: Gifts, meals (always write name of who you met with on the back of receipt), parties, etc.
Meetings 会議費: Your receipts from Starbucks when you met someone for a meeting, etc. Write down the name of the person you met on the back of the receipt.
Rent 賃貸料: If you rent an office or parking lot, enter the rent here
Taxes 租税公課: Any business related taxes, car taxes, etc.
Other headings could include: Advertising 宣伝費, Repairs 修繕費(machines, buildings, car repairs), Outsourcing 外注費 (translations, designs, etc.), Vehicle (any expenses related to car), Packaging expenses 荷造運賃 (if you sell merchandize items like cardboard, string, tape, takkyubin fees). Adjust the headings and items accordingly to your business.
Starting from January 1st, enter all your cash revenue and expenses on one spreadsheet. Make sure to have a running tab at the far edge of your spreadsheet. If it looks like you’re going to go into the red, be sure to bring some money over from your bank account. Create a receipt book by pasting your receipts into a notebook in chronological order. (If you’ve written down details of the expense on the back, just paste the top edge!)
Next, complete the spreadsheet for your bank account. Use the same headings. The running tab at the far end of the spreadsheet must exactly duplicate your bank book. If it doesn’t, make sure that each item is entered correctly.
This is the basic data for your return. If you can get this much done before you head off to the CPA, you will have completed most of their work. There are other factors to consider, such as if you are working out of home, what percentage of your utilities or rent is deductible. If you’re taking a trip home, you may be able to justify part of the airfare by taking a seminar that pertains to your work. You can be quite creative with Aoiro Shinkoku. If you list it as a work expense and find out later that it won’t, just re-enter the amount under Entrepreneur Expense. Just ask your CPA for advise.
In January or February, you will start receiving gensen-choshu-hyo (withheld tax certificate) from your various employers. Keep these as they show how much you earned as payments and how much you have already paid in taxes. Your CPA will calculate your revenue, expenditures, deductibles, etc., into several forms and get them ready to submit to the tax office. Fees can vary from ¥10,000 upward. Learning the basics of preparing your spreadsheets and filling out the forms will save you money in the future.
There are other benefits in addition to the ¥650,000 special deduction.
* If you employ a family member, you can deduct their payments.
* You can carry over losses for several years.
* Chusho Kiko, is a retirement policy for self-employed people. You can pay in between ¥1,000 to ¥70,000 a month, and deduct the entire amount.
For more information, read this article by Louise:
Sarah is a long-time resident born and raised in Japan. She spends her time trying to raise her children, translating and making soy candles on the side. She loves the beach, paddle boarding, mountain lakes and Japanese beer :)