Reasons why you must file a final tax return when you become a sole proprietor|Mechanism of withholding tax Tax for individuals

Aki Japan Tax Services | Your Income and Corporate Tax Specialists | Reasons why you must file a final tax return when you become a sole proprietor|Mechanism of withholding tax Tax for individuals

Author Aki Kojima

Certified Public Tax Accountant with an MBA, member of the Association of Micro M&A Professionals, and licensed real estate agent. I provide tax advisory services, asset management consulting, and support for business owners, freelancers, and sole proprietors. I have extensive experience in international sales, accounting, labor relations, recruiting, and IT management. In addition to my professional work, I write articles and books on taxation and financial education. I enjoy swimming, reading, photography, and spending time in nature with my two children.

August 24, 2023

August 24, 2023

I will explain final tax returns and withholding tax.
If you understand this point, you will know why you must file a final tax return as an employee.

Income tax return when you are a salaried worker

As a salaryman, I didn’t have to file a tax return.
The company left part of my monthly salary as income tax and paid it to me instead.

For example, if you receive 300,000 yen in salary in August, the company will not pay 30,000 yen to the office worker but to the tax office in September.

This total is your annual income tax.
However, if you use this method, you may pay too much income tax for the year, so you must make a year-end tax adjustment.

Therefore, there is no need to file a tax return.

If you have multiple jobs

If you have various positions, you must complete your tax return.

The reason is closely related to the withholding tax mentioned earlier. The company will take income tax from your salary before transferring the money to you.

A person with a job will complete the deduction at the end of the year with the previous year-end tax adjustment.
However, people with multiple jobs do not know how much it will cost.
Because it is a progressive tax system, as your salary increases, so does your income tax.

At this time, it is supposed to take more than the approximate calculation.
If you work for two companies, you will not know this amount unless you file a tax return.

If you file a tax return, you can recover the overpaid tax.

Concrete example

For example, let’s assume you have one child and only one job. Receive a monthly salary.
After deducting social insurance, for example, it is 170,000 yen.
According to the Class A table, you must pay 2,070 yen as tax withholding.

If you have two children, it will be 460 yen.
If there are no children, it will be 3,700 yen.
The number of children changes the amount.
There are other factors, but this is just an example.

Multiplying 2,070 yen for 12 months gives 24,840 yen.
After considering all factors, if your total income tax is ¥20,000, you will get back ¥4,840 through the year-end tax adjustment.

However, only one company calculates year-end adjustments internally.
That calculation does not include income from a second job.

That’s one of the reasons why we recommend filing a tax return for people with multiple jobs.

Secondly, the company of your second job deducts your income tax based on the rule that you are in class B.
In a nutshell, Class B means it’s the second job.

Class B income tax deductions are higher than Class A.
For example, an income tax deduction of ¥170,000 is ¥11,700.
The income tax deduction for class A with the same salary and no children is ¥3,700.

As such, it means people with multiple jobs get their taxes back on their tax returns.

I often have multiple jobs due to double jobs and business preparations.
Be sure to prepare your tax return.