There are legal techniques for protecting a company's cash in a profitable fiscal year. But many of the YouTube videos on this topic only emphasize the "tax you saved." This article verifies the corporate finance hacks promoted by tax accountants and CPAs against primary sources (the National Tax Agency and the Small and Medium Enterprise Agency), and explains the real nature of each one — that it is not "tax saving" but "deferral of taxation" or a "tax-free transfer of funds" — together with the money that comes back later, the cash outflow, the risk of denial, and the countermeasures the government has already put in place. Disclosing every factor you need to judge for yourself is this site's policy.
1. Daily allowances under travel expense regulations: moving money from the company to you, tax-free
Among corporate hacks, the most efficient and fully legal one is the "daily allowance (travel per diem)" paid under a company's travel expense regulations. If a company establishes travel expense regulations and pays a daily allowance that is reasonable by generally accepted social standards each time an employee travels for business, three things happen simultaneously (Income Tax Act Article 9; Income Tax Basic Circular 9-3).
| Party | Treatment of the allowance |
|---|---|
| The company | The full amount is deductible as travel expenses |
| The individual receiving it (officer/employee) | Income tax and resident tax are not levied |
| Social insurance | Not treated as salary, so it is excluded from the premium calculation base |
In other words, paying the same amount as salary would trigger income tax, resident tax, and social insurance premiums, but a daily allowance lets you move cash from the company to an individual with no tax and no social insurance attached. Even a one-person company with no employees is fine as long as the regulations state clearly that "all officers and employees are covered" — it does not matter that, in practice, only the president is covered.
This technique assumes you already have a corporation. The break-even point for a sole proprietor considering incorporation is covered in the timing of incorporation.
2. "100% first-year depreciation" on a 4-year-old used car — but it's a "deferral," not a saving
A long-standing move for when a fiscal year closes with a large profit is buying a 4-year-old used car. A new (standard-size) car has a statutory useful life of 6 years, but used assets have their useful life recalculated under a "simplified method" (NTA Tax Answer No. 5404).
For a 2-year useful life, the 200% declining-balance depreciation rate is 1.000 (i.e., 100%)
→ if you acquire it at the start of the fiscal year and put it into business use, you can expense the entire purchase price that year
(1) Acquisition must be "at the start of the fiscal year." Buying partway through the year prorates the amount by month, and buying right before the closing means you cannot expense the full amount (the rest carries to the next fiscal year).
(2) This is not "tax saving" — it is "deferral of taxation." If you sell the car a few years later, its book value is essentially ¥1, so almost the entire sale price is taxed as a gain on sale. Think of it as buying time — pushing this year's profit into the future so you can put permanent measures in place in the meantime. Choosing a popular model that holds its value well produces a larger built-in gain at the time of sale, which also needs to be factored into your cash planning.
For the basics of depreciation, see Basics of depreciation; for the expanded special provision letting you expense assets under ¥400,000 in one go, see the special provision for small-sum depreciable assets (¥400,000).
3. Short-term prepaid expenses: compress this year's profit by paying a year in advance
When you have cash to spare, a deferral tactic is the "special treatment for short-term prepaid expenses." Recurring service costs such as rent, insurance premiums, server fees, and subscriptions are ordinarily expensed month by month over the period used. However, if you pay in a lump sum for a service you will receive within one year of the payment date and continue to apply the same treatment going forward, you may expense the entire amount in the fiscal year you pay it (Corporation Tax Basic Circular 2-2-14).
If you make a lump-sum, one-year advance payment of rent, insurance premiums, or subscriptions in your closing month, you compress this year's profit by that amount. The requirements are: (1) the service must be received within one year, (2) the same treatment must continue every year (applying it only in profitable years is not allowed), and (3) the service must be uniform in quality and quantity, like rent. Costs that should be matched against revenue (such as interest expense on funds channeled into investment) are excluded.
4. The "¥10,000 rule" for entertainment expenses: meals with outside parties are fully deductible up to ¥10,000 per person
An everyday deduction that is easy to overlook is the reform that took effect in April 2024. Meal expenses with people outside the company can be classified as "meeting expenses" and fully deducted — rather than as "entertainment expenses" for tax purposes — as long as the cost is ¥10,000 or less per person, even if the purpose is client entertainment (the previous threshold was ¥5,000; this applies to expenditure from April 1, 2024 under the Act on Special Measures Concerning Taxation). Because this is a separate allowance from the SME entertainment-expense deduction cap (up to ¥8 million a year, or 50% of meal-related entertainment costs), the total amount you can effectively expense has expanded.
5. Watch for the "countermeasure": going too far always gets shut down
Once a legal hack spreads widely, the government eventually amends the law to shut down excessive tax avoidance. A symbolic case is the Business Safety Mutual Aid (Small Enterprise Mutual Relief System for the Prevention of Bankruptcies). Because premiums are fully deductible and 100% of them is refunded if you cancel after 40 months or more, a deferral loop of "cancel and offset it against a large expense, then immediately re-enroll" had become widespread.
In response, for cancellations on or after October 1, 2024, premiums paid within two years of the cancellation date can no longer be deducted as a loss or a necessary expense (Small and Medium Enterprise Agency). It is a clear rejection of pure tax-deferral loops. The proper use of the system is explained in the Business Safety Mutual Aid.
Do this today
- Track this year's projected profit monthly and decide up front how much of it needs deferring
- If you have no travel expense regulations, prepare a template that covers all officers and employees
- Before buying a used car or making a lump-sum annual payment, run the numbers on your post-payment cash balance and the gain on sale and ongoing burden a few years out
More actions: the Take-Home Boost Checklist. For hacks aimed at individuals, see 7 legal hacks for taxes and insurance premiums in 2026.
Frequently Asked Questions
Q. Up to how much is a business-trip daily allowance tax-free?
A. There is no statutory upper limit. The test is whether the amount is "reasonable by generally accepted social standards," judged against norms for similar businesses of a similar size and the balance across positions within the company. As a rough benchmark, a same-day trip might run about ¥4,000–5,000 for the president and ¥1,000–2,000 for regular staff. Designs that pay only officers, or that create an extreme gap between amounts, will be denied and risk being taxed as an officer bonus.
Q. Does buying a 4-year-old used car reduce my tax?
A. It compresses that year's profit, but this is "deferral of taxation," not "tax saving." If you sell the car a few years later, its book value is essentially ¥1, so almost the entire sale price is taxed as a gain on sale. Also, unless you acquire it at the start of the fiscal year, the amount is prorated by month and you cannot expense the full price. Think of it as buying time to push a sudden windfall of profit into the future while you put permanent measures in place.
Q. Can short-term prepaid expenses be used for any kind of payment?
A. No. It is limited to a service received within one year of the payment date that is uniform in quality and quantity, like rent or insurance premiums, and you must apply the same treatment every year going forward (applying it only in profitable years is not allowed). Costs that should be matched against revenue are excluded. Because a large amount of cash on hand flows out, always check your post-payment cash flow.
Q. Can I still "cancel and re-enroll" in the Business Safety Mutual Aid?
A. If you cancel on or after October 1, 2024, premiums paid within two years of the cancellation date can no longer be deducted as a loss or a necessary expense. Using it as a short-term deferral loop is now effectively blocked. Long-term use for its original purpose — protection against a chain-reaction bankruptcy — remains fully valid.
- NTA No. 5404: Useful life of used assets (Japanese)
- NTA No. 2100: Outline of depreciation (Japanese)
- NTA No. 5380: When short-term prepaid expenses can be deducted as a loss (Japanese)
- NTA No. 5265: Scope of entertainment expenses and the non-deductible amount (¥10,000 threshold) (Japanese)
- NTA: Travel expenses, lodging, and daily allowances (Income Tax Basic Circular 9-3 and others) (Japanese)
- SME Agency: Business Safety Mutual Aid Q&A (2024 revision) (Japanese)
This article is general information, not a solicitation to carry out any specific technique. The effect and suitability vary by individual circumstances, and tax rules may change. Consult a tax accountant or other professional before acting. The Japanese version and official sources are authoritative.