Necessary expenses:Part1

There is an article on the National Tax Agency (after the NTA) website about the scope of "necessary expenses."

"Necessary expenses" sound plain and easy, but it's hard to explain to taxpayers.

I pay tribute to the NTA for summarizing this subject in English.

But, it is undeniable that there is a lack of further diggings.

I don't think it answers the question of non-Japanese freelancers, "How should I think after all?"

Starting today, I will explain the basics of "necessary expenses" over several blogs, keeping in mind the foreigner freelancer who files the blue return.

Scope of necessary expenses ‥ What is the boundary between applicable and non-applicable?

The NTA website states the following as "Amounts that can be included in necessary expenses".
(After this, it describes "the Period for including necessary expenses" and "notes for including necessary expenses")

The amounts that can be included in necessary expenses when calculating business income, real estate income and miscellaneous income are as follows:

(1) Cost of sales corresponding to total earnings and the amount of other direct costs that were incurred to earn the total earnings.

(2) The amount of selling, general and administrative expense and other business expenses that were incurred during the year.

No.12015 Scope of necessary expenses " Amounts that can be included in necessary expenses." (After this, it describes "the Period for including necessary expenses" and "notes for including necessary expenses")

Laws and regulations clearly state what sort of expenses shall not be "necessary expenses," as I will write in a blog post later.

However, there is no "clear boundary" that says, "From here to here, it will be a necessary expense."

There is no case-by-case handling of as much as "necessary expenses."

Even if the expenditure is the same, the judgment as to whether it will be a necessary expense depends on the person's work or the situation of paying money.

Clothing-related expenses are a typical example.

Suppose you are a Japanese restaurant proprietress or a fee announcer.

In that case, the expenses are likely under "necessary expenses."

But, if you are a general freelancer, it is challenging for you to persuade NTA that clothing-related payments are "necessary expenses."

They likely ask you, "You can wear those clothes daily, right?"

And food or drink charges are another examples.

Expenses for eating and drinking to entertain clients or those aiming to acquire a business are permitted, including the payment for freelancers.

However, food and drink charges only for freelancers and family employees are not allowed.

Criteria for judging whether or not it falls under the necessary expenses

What should you think about it?

As long as the law does not stipulate in detail, taxpayers must have judgment criteria or rules.

If you can mark the following four tests with "YES", I believe the expenditure can be a "necessary expense".


I briefly explain each of them.

  1. Expenditures that you do not bear are not your expenses in the first place.
  2. It will never be an expense if it is not related to work.
    "Cost contributing to increasing or sustaining sales" includes those indirectly contributing to sales, such as house rent or insurance premiums.
    It also includes items initially expected to contribute to sales but could not be achieved as a result.
  3. If you do not have a receipt for some reason (such as a ceremonial occasion), keep the date, amount, payee, and details, instead of the receipt.
  4. Let's say the tax office or any other person asks you, "Isn't this a private expense?"
    You are to answer, "It's the expense I need to earn income/sales", with a convincing and objective rationale.