List of Deductible Business Expenses
Everything sole proprietors and freelancers should know about business expenses
We have organized what can and cannot be claimed as an expense, by account category. Correctly recording your necessary business expenses is the most accessible first step to saving on tax.
Basic rules for expenses
"Business relevance" is the test. Claiming ineligible expenses creates risk during a tax audit.
BasicsExpenses by account category
A thorough look at 15 account categories such as communication, transportation and entertainment.
ListHow proration works
How to expense a portion of rent and utilities for a home that doubles as an office.
Tax savingDepreciation and lump-sum expensing
How to handle costly equipment such as PCs and cars, and the blue-return ¥300,000 special rule.
EquipmentExpenses that need care
Gray-zone expenses, common mistakes and how they are judged in a tax audit.
CautionWorked examples of tax savings
Concrete estimates of how much your tax falls as you increase expenses.
CalculationBasic rules for expenses
A necessary business expense under tax law is "an outlay needed to earn business revenue." If a connection to your business (business relevance) is recognized, it can be claimed as an expense, but private spending is not allowed.
Spending directly related to the business, or spending whose business connection can be reasonably explained.
Private spending, spending whose business connection cannot be explained, income tax, residence tax, fines, and the like.
Spending that mixes business and private use can be recorded on a prorated basis by calculating the share of business use.
- Receipts: showing date, amount and payee (keep for 7 years)
- Bookkeeping records: record the account category and a description (what the outlay was for)
- Basis for business relevance: for proration, keep the basis for how the share was calculated
Expenses by account category
Here are 15 account categories commonly used by sole proprietors. Knowing "which category to book something under" makes bookkeeping go smoothly.
- Calls and data on a business-only smartphone
- Business-only internet (fiber line, etc.)
- Monthly fees for online meeting tools (Zoom, Teams, etc.)
- Cloud services (Dropbox, Google Workspace, etc.)
- Domain and server costs
- Fax and postage (for business)
- A smartphone bill shared with private use
→ Prorate by share of business use (e.g. claim 60%) - Home fixed line / Wi-Fi
→ Prorate by share of business use
- Train and bus fares to clients and meetings
- Business trips (bullet train, flights, lodging)
- Taxis (business travel, including getting home after the last train)
- Transportation to seminars and study sessions
- Toll roads and parking for business
- The business-use portion of an IC card (Suica, etc.)
- Private trips and sightseeing
- Commuting (home ⇄ office) is generally not an expense
* Differs when the home is the place of business
- Fuel for a business-only vehicle
- Business parking (monthly)
- Inspection and maintenance (business-only)
- Auto insurance premiums (business-only)
- Automobile tax (business-only)
- Fuel for a car shared with private use
→ Keep a mileage log to work out the business share - Auto insurance, tax and repairs
→ Use the same proration share
Record "date, destination, purpose and distance driven." It is valid as a basis for proration even in a tax audit. Summarizing it monthly is sufficient.
- Meals and entertaining with clients (entertainment expenses)
- Food and drink during a meeting (meeting expenses)
- Gifts and tokens for clients
- Business-related condolence and congratulatory payments
- Meals with private friends
- Eating out with family only
- Eating alone (generally excluded: another party is required)
| Entertainment expenses | Meeting expenses | |
|---|---|---|
| Purpose | Entertaining clients | Food and drink during a meeting |
| Typical amount | Tends to be large | Up to about ¥5,000 per person |
| Limit for sole proprietors | No limit in principle (fully deductible) | No limit in principle (fully deductible) |
| Difference for corporations | Corporations face an ¥8 million or 50% limit | Meeting expenses are fully deductible |
* Sole proprietors do not face the entertainment-expense cap that corporations do, but you are expected to explain the "business necessity."
- Web advertising costs (Google Ads, social media ads, etc.)
- Website production and upkeep
- Making business cards, flyers and pamphlets
- Listing fees on portal sites and crowdsourcing platforms
- Tools and materials for running social media accounts
- Exhibiting at trade shows and events
- Samples and trial products of your service
- Business-related books, magazines and e-books
- Fees for business-related seminars and study sessions
- Cost of obtaining a qualification (when directly needed for the business)
- Online learning services (Udemy, etc.)
- Business-related training and school fees
- Hobby books and hobby seminars
- Cost of a qualification unrelated to the business
e.g. an engineer taking a cooking class
- Fees to designers, engineers and writers
- Fees to tax accountants, labor consultants and lawyers
- Consultant fees
- Translation and interpretation fees
- Payments to subcontractors in general
Outsourcing to individuals in certain fields (design, translation, writing, etc.) carries a withholding tax obligation (10.21%). You must withhold at the time of payment and remit it by the 10th of the following month. Outsourcing to a corporation does not require this.
- Office supplies such as stationery, copy paper and envelopes
- Printer ink and toner
- PC peripherals under ¥100,000 (mouse, keyboard, monitor, etc.)
- Software license fees
- Work clothes and uniforms (business-only)
- Packing materials and shipping supplies
* If the acquisition cost is ¥100,000 or more, it is expensed over multiple years as a "depreciable asset." However, the blue-return ¥300,000 special rule applies (see below).
Other account categories at a glance
| Account category | Main contents | Points to note |
|---|---|---|
| Rent | Rent for office, warehouse or parking | A home doubling as an office requires personal/business proration |
| Utilities | Electricity, gas and water for the office | A home doubling as an office requires personal/business proration |
| Insurance premiums | Business casualty and fire insurance premiums | Life insurance is not an expense (claimed separately as a deduction) |
| Taxes and dues | Fixed-asset tax, individual enterprise tax, revenue stamps | Income tax and residence tax are not expenses |
| Welfare expenses | Employee health checkups, company trips, etc. | Not applicable to a one-person business (no employees) |
| Salaries and wages | Pay for employees and part-timers | Salaries to blue-return family employees are booked under a separate category |
| Repair expenses | Repair and maintenance of the office and equipment | Improvements that raise value are capital expenditure and depreciated |
| Miscellaneous expenses | Small outlays that fit no other category | Overusing it draws attention in a tax audit; use a proper category where possible |
How personal/business proration works
If you use your home as an office, you can claim part of rent, utilities, communication costs and so on as an expense through personal/business proration (kaji-anbun). You calculate the "share used for business" based on a reasonable rationale.
Common bases for proration
Work out the share from the area of the work-only space relative to the total floor area of the home. A floor plan makes a strong basis.
The share of the day spent on business. For costs such as communication, prorating by time is reasonable.
Set the business-use rate to match reality, based on call history, a mileage log and the like.
* You may set the share yourself if you have a reasonable basis. An extremely high share (such as 80%+ on a floor-area basis) risks being denied.
Depreciation and lump-sum expensing
Equipment and facilities with an acquisition cost of ¥100,000 or more are, in principle, expensed over several years (depreciation). However, using the blue-return special rule, anything under ¥300,000 can be fully expensed immediately.
→ Fully expensed at once (up to ¥3 million a year)
Statutory useful lives of major assets
| Type of asset | Useful life | Annual expense under straight-line (for ¥1 million) |
|---|---|---|
| PC / server | 4 years | about ¥250,000/year |
| Ordinary automobile | 6 years | about ¥170,000/year |
| Camera / filming equipment | 5 years | about ¥200,000/year |
| Copier / multifunction printer | 5 years | about ¥200,000/year |
| Air conditioner / HVAC | 6 years | about ¥170,000/year |
| Wooden building (office) | 24 years | about ¥40,000/year |
If you file a blue return, you can fully expense equipment costing under ¥300,000 at once (up to ¥3 million a year in total). By buying needed equipment together at year-end, you can substantially compress that year's income.
Expenses that need care
Here we sort out items that are easily mistaken for "expensable," and gray-zone expenses. Overclaiming expenses leads to a risk of denial in a tax audit.
Life insurance and personal pension premiums a sole proprietor pays are not expenses. However, they can be taken as an income deduction on your tax return as the "life insurance premium deduction" (up to ¥120,000).
Social insurance premiums are not expenses; the full amount can be subtracted from income as the social insurance premium deduction. Do not book them; claim them as a deduction on the tax return.
A meal on your own is, in principle, not an expense (treated as living costs). A meal with a client (entertainment expenses) or a group meal that doubles as a meeting can be expensed.
Under a white return, salary to family cannot be expensed (though a set allowance exists). By filing for the blue-return "salary for family employees", you can fully expense salary paid to family members who actually work in the business.
Business uniforms (work clothes, etc.) count as expenses, but ordinary suits are often denied on the grounds that they "can also be worn privately." Items with clear business-only use, such as logo work clothes, can be expensed.
Trips billed as "inspection" or "research" are denied unless their business connection is clear. It is important that the trip's output (a blog article, a report, etc.) remains, and that you can explain how it differs from private sightseeing.
- On receipts, record a description of "with whom and for what purpose"
- Do not mix private spending into expenses (even unintentionally it can be flagged)
- Document a reasonable basis for your proration share
- For large entertainment and hospitality costs, record the party and purpose in your books
Worked examples of tax savings
Recording expenses correctly lowers income tax, residence tax and national health insurance premiums all at once. The relationship is that every ¥1 of expense saves tax equal to your tax rate.
| Taxable income | Income tax rate | Residence tax rate | Combined rate | Tax saved per ¥1M more in expenses |
|---|---|---|---|---|
| Up to ¥1.95M | 5% | 10% | 15% | ¥150,000 |
| ¥1.95M–¥3.30M | 10% | 10% | 20% | ¥200,000 |
| ¥3.30M–¥6.95M | 20% | 10% | 30% | ¥300,000 |
| ¥6.95M–¥9.00M | 23% | 10% | 33% | ¥330,000 |
| ¥9.00M–¥18.00M | 33% | 10% | 43% | ¥430,000 |
| ¥18.00M and up | 40–45% | 10% | 50–55% | ¥500,000–¥550,000 |
* Income tax is progressive (higher rates on the excess). Taxable income is revenue − expenses − various deductions. National health insurance premiums also track income, so the actual saving is even larger.
* Increasing expenses lowers taxable income, producing a tax saving across several taxes at once.
Learn more in related articles and pages
FAQ
How do I decide the proration?
Prorate rent, utilities and communication costs by the share of business use. Keep a reasonable basis on record, such as floor area or hours of use.
Can equipment under ¥300,000 be expensed all at once?
Blue-return filers can, under the special rule for small depreciable assets, fully expense it at the time of acquisition (up to ¥3 million a year in total; the rule has an expiry date).
How long do I keep receipts?
Books, receipts and the like must, in principle, be kept for 7 years (5 years for some).
Sources / official information
This article is based on the official information below. Rules may be revised; please check each official site for the latest details.
- National Tax Agency — Tax Answer No.2210, A simple guide to necessary expenses (in Japanese)
- National Tax Agency — Tax Answer No.2100, Overview of depreciation (in Japanese)
- National Tax Agency — Tax Answer No.2075, Salary for blue-return family employees and the family-employee allowance (in Japanese)
- National Tax Agency — Tax Answer No.6451, Input tax credit (consumption tax) (in Japanese)
* This article is for general information only and is not tax or legal advice. For individual tax matters, consult your local tax office or a licensed tax accountant (zeirishi).