Tax: employment vs business income?

[ADHWGT]

Hey everybody, I'm back with another round of tax questions... (Thanks again to everyone who replied to my previous threads!)

My situation: I'm a freelance writer living in Tokyo, about to file my taxes as usual. But after doing some reading on http://gaijintax.com/tax-info/, I've started thinking that I've might have gone about this the wrong way so far. Previously, I've declared my freelance income as regular employment income. But judging from what the Gaijin Tax site says, it seems like I could in theory reduce my tax bill significantly by declaring it as private business income instead, and claim a long list of deductions.

Since this all seems pretty complicated to me, I was wondering if anyone here with knowledge of these things by any chance could clear a couple of things up for me:

1. What is the tax rate for "self-employed" people like me? Is it higher or lower than the standard income tax? Is it the same as the "corporate tax" (which seems to consist of 3, 4 or even 5 different taxes)?

2. I've seen lots of people mention the "white form" and "blue form" for filing business income. But the difference is unclear to me. Are deductions for specific business expenses (in my case, mainly lots of business trips) available using the white form, or would I have to apply for the blue form?

3. Is it at all possible to deduct specific business expenses from regular employment income?

Thanks in advance!

[wagyl]

1. What is the tax rate for "self-employed" people like me? Is it higher or lower than the standard income tax? Is it the same as the "corporate tax" (which seems to consist of 3, 4 or even 5 different taxes)?

2. I've seen lots of people mention the "white form" and "blue form" for filing business income. But the difference is unclear to me. Are deductions for specific business expenses (in my case, mainly lots of business trips) available using the white form, or would I have to apply for the blue form?

3. Is it at all possible to deduct specific business expenses from regular employment income?

Thanks in advance!

The lucky Swede returns! Feel free to participate in the rest of the discussions here, don't be shy and just keep to your own threads!

1. Tax rates for income for individuals are the same no matter what your status, employed or self employed. However, if you can claim some expenses that is a direct reduction on your income. Company tax is only for registered corporate structures.

2. Blue form is a special application to make to the tax office where you promise to keep account books in slightly more detail than those who do not make such an application (that is, white form people), and you get a few minor privileges and your proportion of expenses deductions are used as a model for other people in the same industry. I have never applied and I do not see value in it to me to make that application. You can deduct specific business expenses, including travel expenses, using the white form.

Site for freelancers in Japanese language which sets out the differences and offers advice on which is best for who.

3. No. You can make the fixed deduction from regular income (paid as a salary). That fixed deduction is however pretty generous. You can only deduct specific business expenses from your freelance business. There is nothing stopping you making a loss in your freelance business, however, and I think at least some of the examples at gaijintax do just that.

[ADHWGT]

The lucky Swede returns!

Ha ha, I wish I could change my username to that! (Although I don't tend to feel particularly lucky when the Ides of March draws near...)

You can deduct specific business expenses, including travel expenses, using the white form.

Great, thanks for the clarification. Would you also happen to know if the long list of possible deductions for business expenses on Gaijin Tax ("Rent, Utilities, Airfare & Accommodation, Transportation, Phone, Internet, Entertaining" etc) is safe to go by? http://gaijintax.com/tax-info/

For example, I work from home, so should I really be able to deduct 50% of my rent and utilities, as the site claims?

Oh, and by the way: how is the automatic deduction on employment income calculated? Last year it was something like 1,9 million in my case, which seems pretty generous (that would equal a lot of business expenses).

[wagyl]

Would you also happen to know if the long list of possible deductions for business expenses on Gaijin Tax ("Rent, Utilities, Airfare & Accommodation, Transportation, Phone, Internet, Entertaining" etc) is safe to go by? http://gaijintax.com/tax-info/

Do you have the forms in front of you? I don't think they have changed significantly from what is shown on that site. If you have the blank forms, you will see where there are items for you to enter the various expenses, and this will answer 90% of your questions. http://gaijintax.com/step-by-step-guide ... ses-front/

For example, I work from home, so should I really be able to deduct 50% of my rent and utilities, as the site claims?

If you think that you can justify to the tax authorities, if they ask and do an audit, that your home office uses half of the space/time and half of the power, then yes.

Oh, and by the way: how is the automatic deduction on employment income calculated? Last year it was something like 1,9 million in my case, which seems pretty generous (that would equal a lot of business expenses).

http://gaijintax.com/step-by-step-guide ... -b-page-1/ under 3. Amount of Income

You have been lucky so far, but I stop holding your hand now. Please read the materials you yourself link to before asking questions. If you still have questions after that, then you can seek clarification.

[ADHWGT]

Please read the materials you yourself link to before asking questions.

You're absolutely right, sorry about that. I don't know how I missed the part on Gaijin Tax about the employment income deduction. (Could have something to do with having like 15 tabs about this topic open at the same time, I guess. I'm terrible at figuring this stuff out, so I tend to get overwhelmed.)

Thanks again for the answers!

[Samurai_Jerk]

Please read the materials you yourself link to before asking questions.

You're absolutely right, sorry about that. I don't know how I missed the part on Gaijin Tax about the employment income deduction. (Could have something to do with having like 15 tabs about this topic open at the same time, I guess. I'm terrible at figuring this stuff out, so I tend to get overwhelmed.)

Thanks again for the answers!

Hire an accountant.