[Part 3: Freelance & Side Jobs] How to File Your Tax Return

Unlike company employees, sole proprietors and freelancers do not have "nenmatsu chosei" (year-end tax adjustment). You must total your own income and expenses for the year, calculate the tax amount, and file and pay it yourself. Company employees with side-job income must also follow the same procedure if their income exceeds a certain amount.

Depending on your residence status, there may be restrictions on the scope of work you are allowed to do. Before dealing with taxes, please confirm that your activity is legal under immigration law. If you earn income outside your main job under "Engineer/Specialist in Humanities/International Services" status, or if an international student exceeds the scope of their permission to engage in activities other than that permitted under their status of residence, this becomes a bigger issue than taxes.

For details on the residency classification that determines your taxable scope, please see Part 1: General Overview.

1. Do You Need to File a Tax Return? Situation / Income Tax Return / Resident Tax Return Sole proprietor/freelancer (has business income) / Required / Completed via income tax return Company employee + side-job income over ¥200,000/year / Required / Completed via income tax return Company employee + side-job income of ¥200,000/year or less / Not required / Required Receiving salary from 2 or more workplaces / Required / Completed via income tax return

The most common misunderstanding is the second-to-last row. "I don't need to do anything because it's ¥200,000 or less" is incorrect — the ¥200,000 rule does not apply to resident tax. You must separately file a resident tax return with your municipality.

Also, even if your side-job income is ¥200,000 or less, if you file an income tax return for another reason (such as a medical expense deduction), you must include your side-job income in that filing as well. You cannot choose to report only part of your income.

2. Classifying Income — Business Income or Miscellaneous Income?

Even for the same freelance income, how it is classified makes a big difference.

/ Business Income / Miscellaneous Income Blue return special deduction / Available / Not available Offsetting losses against other income / Possible / Not possible Carrying forward losses (3 years) / Possible (blue return) / Not possible

To be recognized as business income, the activity must show independence, continuity, and repetition, and must be generally recognized as a "business" in common understanding. Key indicators include keeping proper books and records, and having income that has reached a certain scale. If your side job is small-scale and you keep no books, it is more likely to be classified as miscellaneous income.

3. Understanding Expenses

Business income is calculated as "Income − Necessary Expenses." Only expenditures directly necessary to earn revenue can be recognized as expenses.

Main expense categories: - Outsourcing costs, purchases - Communication expenses (internet, mobile phone) - Consumable goods (PC, peripherals, stationery) - Travel expenses - Meeting expenses, entertainment expenses - Rent, utilities - Depreciation expenses (assets worth ¥100,000 or more) - Household expense allocation

If you work from home, you can expense only the portion of rent, utilities, and communication costs that is used for business. The basis for this allocation must be explainable using reasonable criteria, such as floor area ratio or time-of-use ratio.

If you decide to claim "50% of rent," keep records (such as a floor plan or the size of your workspace) that can explain why 50% is appropriate.

Record Keeping

Receipts and invoices must generally be kept for 7 years. Under the Electronic Bookkeeping Act, invoices and receipts received as electronic data must be stored electronically. Printing out PDFs received via email or the cloud and keeping only the paper copies is not permitted.

4. Blue Return (Aoiro Shinkoku) Filing

If you submit a notification in advance, you can choose to file a Blue Return.

Main benefits: Benefit / Details Blue return special deduction / Up to ¥650,000 (e-Tax filing + double-entry bookkeeping) / ¥550,000 / ¥100,000 Carryover deduction for net losses / Losses can be carried forward for up to 3 years Blue return family employee salary / Salaries paid to family members who share your livelihood can be treated as expenses Special provision for small depreciable assets / Assets under ¥300,000 can be expensed in full at once

Deadline for notification: - In principle: By March 15 of the year you want it applied - For new businesses: Within 2 months of the business start date

If you miss the deadline, that year will be filed as a White Return instead. When starting a business, first submit both the "Notification of Opening/Closing of Individual Business" and the "Application for Approval of Blue Return for Income Tax" together.

5. Consumption Tax and the Invoice System Determining Tax Liability

In principle, if your taxable sales in the base period (two years prior) exceed ¥10 million, you become a taxable business for consumption tax purposes. If it is below that, you are a tax-exempt business.

However, with the introduction of the Invoice System (Qualified Invoice Storage Method), the decision is no longer simple.

Deciding Whether to Register for Invoices

If you remain a tax-exempt business, your business clients cannot claim input tax credits for payments made to you. As a result, freelancers whose main clients are businesses are increasingly being asked to register.

/ Register / Don't Register Consumption tax payment / Required / Not required Client's input tax credit / Possible / Not possible (transitional measures apply) Administrative burden / Increases / Unchanged

If your clients are mainly general consumers (e.g., restaurants, retail, private lessons), choosing not to register can also be a reasonable decision. Since the answer depends on your client mix, there is no single correct answer.

If you do register, also check whether you are eligible for the burden-reduction measure for small businesses (a special provision allowing you to pay tax equal to 20% of your sales tax amount).

6. Treatment of Cryptocurrency

Under the current system, gains from selling or exchanging cryptocurrency are generally treated as miscellaneous income and are subject to progressive tax rates under comprehensive taxation (up to 45% plus 10% resident tax). This is very different from the treatment of stock transfer gains, which are taxed separately at a flat 20.315%.

Taxation is not triggered only when you sell. It also applies when: - You exchange cryptocurrency for another cryptocurrency - You purchase goods or services using cryptocurrency - You acquire cryptocurrency through mining or staking

It is a mistake to think "I haven't converted it to yen, so it's not taxed."

Note that the Fiscal Year 2026 Tax Reform Outline indicates a direction toward shifting certain cryptocurrency transactions to separate taxation at 20.315%, along with the introduction of a 3-year loss carryforward deduction. Since this area of the system is still evolving, be sure to check the latest information.

7. If You Have Foreign-Source Income

If you have business income, rental income, or investment gains in your home country, whether you need to file depends on your residency classification.

- Non-permanent resident — Only foreign-source income that is paid domestically or remitted to Japan is taxable. - Permanent resident (living in Japan for more than 5 years) — Worldwide income is taxable.

Once you have lived in Japan for more than 5 years and become classified as a permanent resident, you must also report income from your home country in Japan. Details on this classification and the treatment of remittances are explained in Part 1: General Overview.

If you have already been taxed abroad, double taxation can be adjusted through the Foreign Tax Credit. This is applied when filing your income tax return.

8. Filing and Payment Schedule Timing / Details January / Organize payment statements and books February 16 – March 15 / File income tax return and pay income tax March 31 / File and pay consumption tax April / Automatic bank withdrawal for transfer payment June, August, October, following January / Pay resident tax (ordinary collection) July, November / Estimated tax prepayment (if prior year's tax was ¥150,000 or more) August, November / Pay individual business tax (if applicable)

You can file at the tax office window, by mail, or using e-Tax (which can be completed entirely with a My Number Card and smartphone). To receive the ¥650,000 Blue Return special deduction, you must use e-Tax or electronic bookkeeping storage, so in practice e-Tax has become the standard method.

Resident Tax Collection Method (For Employees with Side Jobs)

If you select "Pay myself (ordinary collection)" in the resident tax section of your income tax return, the resident tax for your side-job income will be billed directly to your home instead of being deducted through your employer. However, if your side-job income is also classified as salary income, this option is not available, and it will be combined with special collection through your employer.

9. Frequently Asked Questions

Q. I haven't submitted a business opening notification. Do I still need to file a tax return? A. Yes. Whether or not you submitted a business opening notification has no bearing on your tax filing obligation. While the notification is practically important as a prerequisite for the Blue Return, not having submitted it is not a valid reason to skip filing.

Q. Should I file even if I'm operating at a loss? A. If you use the Blue Return, you can carry forward losses for 3 years, so filing is worthwhile. Also, having a filing history helps in situations where proof of income is needed, such as renewing your residence status, signing a rental contract, or applying for a loan.

Q. I received payment with tax withheld at source. What should I do? A. Payments such as manuscript fees, design fees, and lecture fees have 10.21% withheld at source when paid. When you file your income tax return, you calculate your annual tax liability and subtract the amount already withheld — in many cases, this results in a refund.

Q. Can I verify a client's invoice registration number? A. Yes, you can search for it on the National Tax Agency's Qualified Invoice Issuing Business Public Announcement website. You can check whether the number on an invoice you received actually exists.

Read Next - Part 2: For Company Employees — Employment income deduction, year-end tax adjustment, dependent deduction - Part 4: Leaving/Returning to Japan — Tax administrator, resident tax, business closure procedures