As in most countries, Japan has a system of withholding tax. This means that each month, your employer withholds part of your income for tax. At the end of the year, you calculate your total income and relevant tax amount. If your company has withheld more than is required, you will get a refund. If you are short, then you must pay the extra. Of course, we want to get back as much of it as possible – and this guide shows you how!
There is also residential tax, (a.k.a. inhabitants tax, local tax, city tax and ward tax), which is paid to the local government. Many of you have certainly been surprised by a letter in the mail asking you to pay a few hundred thousand yen over four installments, right? This too, is based on your income. So by reducing your net income, not only do you reduce your income tax (and get some refunded!), you also significantly lower your residential tax bill.
There’s more. National Health Insurance is also based on your income. For zero income earners, there is a base fee of approximately 35,000yen (varies depending on the ward/city). If you have some form of income, then you must also pay an additional 10% ‘medical levy’. So for someone earning 4,000,000yen/year, expect your health insurance to be about 150,000yen/year.
Deductions
Now, lets imagine for example that you also work privately and generate approximately 400,000yen per year. This may come from private teaching, both at your home and students’ homes, and from any other work which you might do. So, expenses incurred, such as a proportion of your rent etc., is deductible as a business expense. Remember, when submitting your tax forms, you do not need to submit receipts. Only should the tax officer enquire about your application and visit your home do you need to provide some sort of evidence. Here is a list of some of the higher value deductions you are able to claim should they be for business purposes:
Rent, Utilities, Airfare & Accommodation, Transportation (inc. Train, Taxis, etc.), Phone, Internet, Entertaining (Dinners, Concerts, Sporting Events), Books, Computers, TV/DVD, Training/Education, Gym Membership, Gifts… The list goes on…
Reducing Tax
So, the way to reduce your tax is to reduce your net income. And we do this by deducting relevant business expenses. For income paid by an employer, we cannot claim many specific deductions. Rather, there is a specific formula for calculating a fixed rate deduction.
However for private business income, for example income generated by having your own private school and teaching privately in cafes or at your home, we can deduct specific business expenses. You private business does not have to be officially registered. As long as you are honest and write down in your tax form the amount of extra cash income you have generated, then you technically have a business (aka sole proprietor), and relevant expenses that go with it. This business can run at a loss, and this loss can be used to deduct your employment income.
To give you an example (as used in this guide), someone with a total income of around 4.9million yen, and expenses of 2.1million yen, a wife and child, is left with a taxable income of only 200,000-300,000yen. This means a tax contribution of around 10,000-20,000yen. Assuming that he or she has had Tax Withheld by their employer(s), that person could expect to get around about 150,000yen as a tax return 
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