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Sole Proprietor Income Tax: Computing the Number

Sole proprietor tax in Japan runs a five-step chain: revenue minus business expenses minus the blue-return benefit gives business income; other income joins it; personal deductions come off; the bands price the remainder; the surtax tops it up. Work it once with your own figures and every later filing is the same chain with new numbers.12

Confirm current details with official sources

Procedures, fees, and requirements can change. Confirm current details at the National Tax Agency site. This article is general information, not tax advice; for your specific case, consult a licensed tax accountant (zeirishi).

Overview​

A sole proprietor, or 個人事業主 (kojin jigyonushi), computes 事業所得 (jigyo shotoku, "business income") first and personal tax second.1 Employees skip the first half because payroll implies it; freelancers own the whole chain, which is why this article starts at revenue rather than at salary.1

The computation chain​

The diagram shows the NTA computation order: business result first, personal deductions second, bands and surtax last (as of 2026-09).2

Step 1: business income (revenue, expenses, blue benefit)​

Business income equals gross revenue minus 必要経費 (hitsuyo keihi, "deductible business expenses"): rent for the workspace share, supplies, travel, communications, subcontracting, and depreciation on business assets, each within business use.1 Mixed-use spending needs a defensible split; a laptop used half for work deducts roughly half, not all of it.1

Then comes the 青色申告特別控除 (aoiro shinkoku tokubetsu kojo, "blue-return special deduction"), which subtracts directly from business income before any personal deduction (as of 2026-09; confirm current figures with the NTA):34

Bookkeeping tier (as of 2026-09)Benefit
Double-entry books filed electronically (e-Tax or electronic records)650,000 yen
Double-entry books on paper550,000 yen
Simplified bookkeeping or cash-basis reporting100,000 yen
White-form filingZero

The table as a whole reflects the NTA blue-deduction schedule (as of 2026-09).4 The gap between the top and bottom tiers is 650,000 yen of taxable income per year, which at a 10 percent marginal slice is 65,000 yen of tax plus surtax: the bookkeeping decision has a real price.4

Step 2: total income (add the other categories)​

Business income plus any other-category income (a part-time salary, miscellaneous income, capital gains) gives the gross income total.2 No new technique here; the step matters because personal deductions and the basic-deduction band key off this total, not off business income alone.25

Step 3: taxable income (subtract the personal deductions)​

Subtract the personal deductions: basic per the Reiwa-7 bands, spouse and dependent relief, full social-insurance premiums, life-insurance caps, and the rest of the stack the companion deduction guide details.2 The result is taxable income, the input the seven bands price.26

Retirement contributions are a Step 3 lever

iDeCo and small-business mutual-aid contributions deduct in full at this step, so each contributed yen escapes the top slice first. Price the contribution against the marginal band, not the average.

Worked example: 5M revenue freelancer​

The example below is illustrative, with assumptions dated 2026-09-09: revenue 5,000,000 yen; business expenses 1,000,000 yen; blue e-Tax benefit 650,000 yen; social-insurance paid 1,000,000 yen; single filer with no other income and no further deductions.145

Business income is 5,000,000 − 1,000,000 − 650,000 = 3,350,000 yen. Total income is the same 3,350,000 yen with no other categories. The basic deduction for total income at or under 3,360,000 yen is 880,000 yen under the Reiwa-7 bands (as of 2026-09).5 Personal deductions total 880,000 + 1,000,000 = 1,880,000 yen. Taxable income is 3,350,000 − 1,880,000 = 1,470,000 yen. Base tax is 1,470,000 × 5% = 73,500 yen. The surtax is 73,500 × 2.1% = 1,543 yen after rounding. Total national income tax: 75,043 yen.26

Two sensitivities to carry home. Dropping to the paper tier (550,000 yen benefit) adds 100,000 yen of taxable income, or about 5,000 yen of tax at this slice. And the example's 1,000,000 yen of social-insurance premiums does more work than the blue benefit does: uncapped deductions scale while capped ones do not.

US persons: two self-employment systems​

US self-employment tax can apply to the same freelance earnings that Japan taxes as business income, so the overlap is two systems deep: income tax on both sides plus social coverage on at least one.3 The US-Japan totalization agreement generally keeps a self-employed person in one social-security system, with residence-country coverage as the typical outcome, but the coverage position turns on individual facts (as of 2026-09; confirm your position before assuming either side).3

Treaty characterization of specific income types adds a second layer the computation chain above cannot answer. Readers with US-connected clients or US-source payments should run both returns past a cross-border professional rather than netting the two systems by intuition.

Do not pay both social systems by default

Dual social-security payment is the expensive failure mode this section exists to prevent. Confirm the totalization position first; contributions once paid to the wrong system are hard to unwind.

Good to know​

Withholding on your invoices is a prepayment, not the tax​

Clients withhold at the statutory rate on qualifying freelance fees, and that withholding credits against the liability computed above: over-withheld amounts refund through the return, under-withheld amounts bill (as of 2026-09).7 Price projects on the gross fee and settle the difference in March; never treat the withheld figure as the final cost.

Books decide the blue tier before the return does​

The 650,000 yen tier needs double-entry books kept electronically through the year, not reconstructed in March.4 Starting clean books in January is the highest-returned hour a new freelancer spends; April reconstruction caps the benefit at the lower tier by rule.

Filing correctly is also visa paperwork​

Proper performance of public duties including tax is a stated criterion for permanent residence, and even late-paid amounts count against the applicant in principle (as of 2026-02-24).8 For freelancers, whose filings the state sees in full every year, the paper trail doubles as compliance evidence: file completely, pay by the deadline, and keep every assessment.

See also​

References​

Footnotes​

  1. National Tax Agency. No.1350 事業所得の課税のしくみ (business-income mechanics: revenue minus expenses). https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1350.htm ↩ ↩2 ↩3 ↩4 ↩5 ↩6

  2. National Tax Agency. No.1000 所得税のしくみ (computation flow to taxable income; surtax 2.1%). [令和7年4月1日現在法令等]. https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1000.htm ↩ ↩2 ↩3 ↩4 ↩5 ↩6 ↩7

  3. National Tax Agency. No.12010, Blue return system (English; blue vs white frame). https://www.nta.go.jp/english/taxes/individual/12010.htm ↩ ↩2 ↩3

  4. National Tax Agency. No.1481 青色申告特別控除 (blue special deduction: 650K electronic, 550K paper, 100K simplified). https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1481.htm ↩ ↩2 ↩3 ↩4 ↩5

  5. National Tax Agency. 所得税のしくみ kurashi guide (Reiwa-7 basic-deduction bands). https://www.nta.go.jp/publication/pamph/koho/kurashi/html/01_1.htm ↩ ↩2 ↩3

  6. National Tax Agency. No.2260 所得税の税率 (7-band table). https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/2260.htm ↩ ↩2

  7. National Tax Agency. Client-withholding mechanics for remuneration (English withholding outline). 2025. https://www.nta.go.jp/publication/pamph/gensen/gaikokugo/pdf/06_en.pdf ↩

  8. Immigration Services Agency. Guidelines concerning permission for permanent residence (revised 2026-02-24). 2026. https://www.moj.go.jp/isa/applications/resources/nyukan_nyukan50.html ↩