In the second of his two part look at the Japanese tax system, Jeffrey Strain offers money-saving tips for the self-employed, and gives advice on how to handle tax return hell.



The myriad of allowances offered by the Japanese tax system, outlined in last week' Money Talks, should allow most employees to save at least some yen at the end of the financial year. If your employer is aware of the tax deductions for which you qualify, there is no need to file a tax return. There are a number of people who may want to file a return, however, due to special circumstances. These include people who suffered damage to their home or belongings due to a natural disaster or theft, people who have incurred inevitable expenses related to disasters and people who have newly acquired a home. Another category of people who may want to file a tax return are those who are self-employed or have either business or miscellaneous income as opposed to employment income.

The Japanese income tax return allows you to report any expenses you've incurred while generating your income. This can be a significant amount of money, depending on your circumstances. Even if you aren't officially self-employed, you may still be able to claim tax-deductible expenses. This can reduce your taxable income and therefore the amount of tax you pay.

To save money, companies sometimes classify foreign staff not as salaried employees, but as contract workers. This means the company doesn't have to provide benefits such as a pension or national health payments. While this is a terrible deal from a benefit standpoint, it can work in your favor during tax time. If you are considered a contract worker, it may be possible to claim that you're self-employed, especially if you have more than one income source.

If you can claim self-employment, there are a number of legitimate deductions you can make to reduce your taxes. Even if you do only a small amount of work at home, you can claim a portion of your expenses for rent, utilities (electricity, gas and water), office supplies and materials, communication expenses (telephone and mail), computer equipment and even Internet service fees. Newspaper and magazine subscriptions, business entertainment and formal business-related gifts are all legitimate expenses. As long as you can show the cost is related to your business activities and income, you are entitled to deduct the expense.

Although all work-related expenses can be deducted, not all can be deducted outright in a single year. Anything costing more than approximately JY100,000 is considered to be an asset instead of an expense, and must be depreciated over time. For example, if you buy a new electronic diary for JY30,000, you can fully deduct it as an expense required for your work. If, however, you buy a new computer for JY250,000, that represents an asset which must be written off over a number of years.

It's essential to have receipts to support all business expenses and assets you claim. You must also take care to ensure that the deductions you make are reasonable. Claiming excessively increases your chances of being audited.

There are several ways of completing and submitting your tax return. For those wanting to complete the tax return themselves, it is fairly straightforward. Your local tax office should have an English pamphlet entitled "Income Tax Guide For Foreigners" which gives instructions on completing your tax return. Large tax offices also hire private accountants during tax season to help members of the public correctly complete their tax forms. If you're not confident with your Japanese, however, it's advisable to bring a Japanese-speaking friend when visiting the tax office.

In most cases it's worthwhile for those who want to deduct self employment or business expenses to contact an accountant. This will allow you to ask questions so you will know exactly what you can and cannot deduct on your current tax return, as well as your future returns. Although accountant fees can be expensive, a good accountant will teach you how to prepare yearly for the tax season, and give you ideas on new ways to save money from the tax authorities so you never give the Japanese government more than it deserves. The better an accountant's experience with personal tax returns and knowledge of deductible expenses, the more you will stand to gain. For many, after one visit you will have enough knowledge to do your own tax return in future years.

The Income Tax Guide For Foreigners 1998 pamphlet in English is available from the Tokyo Regional Taxation Bureau. 1-3-2 Otemachi, Chiyoda-ku. Tel: 03-3216-6811. More information can be found on the web in English.

Reproduced with permission of Kansai Time Out.