10 freelance engineer tax-saving measures ranking! Save tax wisely with expenses and deductions

table of contents

• 1. Freelance tax saving mechanism
• 2. Top 10 freelance tax-saving measures ranking
• 3. Beware of the pitfalls of tax savings!
• 4. Easily save taxes by using tax return software!
• 5. Summary
• 

• First, let’s introduce how freelancers can save taxes and how they can save taxes.
  In fact, freelancers have a lot of systems to keep taxes down. However, it seems that many people do not take tax-saving measures because they do not know what to do and they are not good at work other than as an engineer.
  If you know and practice tax-saving methods, you will pay less taxes and you will have more money on hand. The mechanism for efficiently generating money can be set up by saving taxes.

  1.1 What are the taxes paid by freelancers?

  Here is a brief description of the main types of taxes that freelancers pay.
  The main taxes borne by sole proprietors are income tax, inhabitant tax, sole proprietorship tax, consumption tax, etc. Among them, income tax is the easiest to take tax-saving measures. Income tax is income minus necessary expenses and income deductions multiplied by the tax rate.
  The calculation formula is as follows.

  Income tax amount = << “income (income-necessary expenses)”-“income deduction” >> x tax rate

  The basis of income tax saving measures is to record all necessary expenses and make full use of deductions.
  I will explain the points of income tax savings in more detail in the next section.

  

  [Freelance tax] Calculation method and payment schedule by type

  1.2 Expenses and deductions are the key points for tax savings

  A solid understanding of expenses and deductions is important for income tax savings .
  Expenses and deductions can be deducted from your income, so the more you deduct, the less taxable your income will be. Let’s save income tax by having correct knowledge about expenses and deductions and controlling it by yourself.

  1.3 Freelance tax is determined by tax return

  If you are a freelancer, you will be required to file your tax return to determine the amount of tax to be paid.
  When I was a salaryman, the company deducted what was confirmed by year-end adjustment from my salary, but this is not the case with freelancers. You need to declare the sales and expenses correctly by yourself. Use mutual aid and deductions wisely to save taxes.

• It’s time to save tax! But what should I start with? For those who say, we have prepared “10 best tax-saving measures ranking for freelancers” . Not only basic tax-saving methods but also highly effective measures can be considered immediately by freelancers. Please refer to it.

  

  [2021 version] Summary of tax returns and changes for 2020 (Reiwa 2)! Freelance must-see

  2.1 [10th place] Basic deduction

  The basic deduction is available to all people who have income . It is a deduction that can be deducted according to the total income of the taxpayer. The basic deductions are as follows.

  Total income of taxpayer	Deduction amount
  24 million yen or less	480,000 yen
  Over 24 million yen and under 24.5 million yen	320,000 yen
  Over 24.5 million yen and under 25 million yen	160,000 yen
  Over 25 million yen	0 Yen

  If you work as a freelancer, you will be eligible for the basic deduction by filing your tax return.

  Reference: No.1199 Basic deduction | National Tax Agency

  2.2 [9th place] Deduction for dependents and spouse

  If the taxpayer has a dependent relative who is eligible for deduction under the Income Tax Act (such as a child aged 16 or over and with an income of 480,000 yen or less), a certain amount of income deduction will be applied to the “Deduction for Dependents” . .. In addition, if the spouse’s income is 480,000 yen or less and the total income of the taxpayer who receives the deduction is 10 million yen or less, the “spouse deduction” will be applied. Since the target conditions are determined in detail for each, let’s check again whether there is a corresponding family member by referring to the National Tax Agency’s website.

  Reference: No.1180 Deduction for dependents | National Tax Agency
  Reference: No.1191 Deduction for spouse | National Tax Agency

  2.3 [8th place] Medical expense deduction

  

  If the medical expenses exceed 100,000 yen, the excess amount will be deducted as a “medical expenses deduction”. Since it is possible to calculate the amount of medical expenses for all households, the taxpayer should manage the receipts for treatment. All treatment actions (hospital fees, medicine fees, transportation expenses for going to hospital, etc.) are eligible for deduction. Please note that year-end adjustments cannot be used, and tax returns must be filed.

  Reference: No.1120 When paying medical expenses (medical expenses deduction) | National Tax Agency

  2.4 [7th place] Insurance / pension enrollment

  If you take out insurance or annuity, the premium will be fully deducted from your income and you will be able to save taxes.

  ◆ Defined Contribution Pension (iDeco)

  iDeco is a pension that you receive after the age of 60 by accumulating and managing the amount you decide. The stake is fully deductible. Normally, buying stocks is not an expense or deduction, but buying iDeco’s investment products (investment trusts) is allowed as a deduction. Although it has a tax-saving effect, it is not possible to cancel until the age of 60, so it is recommended that you join after your life as a freelance engineer is on track.

  Reference: Defined Contribution Pension Plan | Ministry of Health, Labor and Welfare

  ◆ Small business mutual aid

  Small business mutual aid is a funded retirement allowance system for sole proprietors. This is also subject to a full deduction for the premium. It will be a great help for freelancers who do not have a severance pay guarantee when they go out of business. You can receive the money when you cancel the contract, and you can start from 1000 yen, so even if you are an independent person, it is easy to start immediately.

  Reference: Small Business Mutual Aid | Organization for Small & Medium Enterprises and Regional Innovation

  ◆ National pension insurance premium

  The monthly premium of the national pension is actually a full income deduction. Although the money will be returned in the future, it will have a tax-saving effect because the income for the insurance premium will be reduced even now that the money is actually paid. Even if you pay the unpaid amount in a lump sum, the full amount will be deducted, so if you are unable to make ends meet at the beginning of your independence and have not paid, you can save tax by paying the insurance premiums retroactively.

  Reference: National Pension Insurance Premium | Japan Pension Service

  Rather than doing this to save taxes, it’s better to save for future asset design. As a result of investing in the future, it may be good to think that tax savings have been achieved.

  

  Compensation that freelancers want to prepare for the future and old age

  2.5 [6th] Mortgage deduction

  The mortgage deduction is a system in which income tax is reduced according to the balance of the mortgage at the end of the year. It is not an expense or a deduction but a “tax credit” * , and since the tax can be reduced directly, a considerable tax saving effect can be expected. The real estate company will also guide you when you buy a house, so be sure to check any unclear points before proceeding.
  If you’re a freelancer, don’t forget to file your mortgage deduction each year.

  Reference: Outline of mortgage tax reduction system | Ministry of Land, Infrastructure, Transport and Tourism
  Reference: No.1213 When a new house is built or a new house is acquired (special deduction for housing loans, etc.) | National Tax Agency

  * Tax credit: A certain amount is deducted from the income tax amount calculated by multiplying the taxable income amount by the tax rate.

  Reference: No.1200 Tax Credit | National Tax Agency

  2.6 [5th] Hometown tax payment

  

  Hometown tax payment is a mechanism to donate to your favorite local government that you want to support. By making a donation, you can contribute to the community and receive local specialties as a gift in return for the donation. You pay when you donate, but donations are mostly deducted from taxes. As a result, you can receive a reward item equivalent to more than that with a commission of 2,000 yen, which is a great deal.
  In order to pay tax at a cost of 2,000 yen, the maximum donation amount differs depending on each annual income and family structure, so it is a good idea to first check how much you can donate by using the deduction maximum amount simulation * .

  * Simulation of maximum deduction amount

  Reference: I understand! Hometown tax payment | Ministry of Internal Affairs and Communications

  2.7 [4th place] Opening fee

  Starting a business is one of the strongest tax savings for freelancers. The preparation cost for opening a business can be expensed and deducted from income at any time if certain requirements are met. Even if the amount of each expense is small, it will be a reasonable amount if it is accumulated.
  Keep your receipts safe before opening, as you can go back to some extent for the expenses you spend to open.
  Equipment and devices that cost 100,000 yen or more are fixed assets, so be careful when arranging peripheral devices such as PCs.
  ( See also the ” Depreciation ” section.)

  2.8 [3rd place] Notification of full-time salary

  A full-time employee is a family member who helps (or is exclusively engaged in) his or her work. It may be available to those who work freelance with the support of their family.
  You can expense your family salary by submitting a blue full-time salary notification to the tax office and clearing various regulations. There are various rules such as prior notification is required, deductions for dependents and spouse deductions cannot be used together, and age limits, so make sure you understand and utilize the full-time salary system.

  Reference: No.2075 Blue Business Specialist Salary and Business Specialist Deduction | National Tax Agency

  2.9 [2nd place] Tax-saving measures by expenses

  A good understanding of expenses is a very important point in tax-saving measures. Basically, for you as a freelance engineer, everything you need for a job is an “expense”. Make sure to keep receipts and receipts that are related to your work.
  When using a part of your home as an office or using a private car for a meeting, the amount used for private and business is calculated proportionally, and a part of rent and utility expenses is recorded as an expense. Apportionment is possible.

  The following is a typical example of what freelancers can expense. Even if you haven’t used it as an expense until now, if there is something that applies to “work-related expenses”, you can reduce it with expenses, so please refer to it.

  travel expenses	Travel expenses related to work such as meetings and work at customers
  Communication costs	Internet fee, mobile phone fee, server usage fee, cloud storage usage fee, etc.
  advertising expenses	Costs for creating business cards and portfolio sites, New Year’s cards, etc.
  Entertainment fee	Food and drink charges incurred at meetings with clients. Work-related wedding ceremonies and ceremonies are also accepted as entertainment expenses
  Consumables costs	Printer ink / copy paper, pens, stationery such as mice and keyboards, business cards and slips, smartphone apps used at work, desks for business use, etc.
  Depreciation	Applicable to PCs and cars that cost more than 100,000 yen. Set the useful life instead of recording in a lump sum, and declare in installments
  Miscellaneous expenses	Temporary or non-expensive expenses that do not apply to other accounts

  Reference: No.2210 Easy knowledge of necessary expenses | National Tax Agency

  

  How much is the cost of a freelance engineer OK? The point of judgment is here!

  2.10 [1st place] Blue declaration special deduction

  The blue filing special deduction is a very tax-saving mechanism that can save 100,000 or up to 650,000 in final profit just by filing a blue filing. It can be said that it is a tax-saving measure with considerable merit for freelancers. Since the difficulty level of the blue tax return with 100,000 yen deduction and the white tax return without special deduction is almost the same, it is recommended to file the final tax return with blue option.
  Please also refer to the following articles for detailed merits, filing methods, and the new system that will be revised from the final tax return submitted on April 15, 2021 (for 2020).

  Reference: No.2075 Blue Business Specialist Salary and Business Specialist Deduction | National Tax Agency

  [2021 version] Freelance engineer’s final tax return | Explains the merits and methods of blue filing and the new system

  3. Beware of the pitfalls of tax savings!

  

  Things to keep in mind when freelancers save taxes. That is not to mistake “tax saving” for “wasting” . If you buy peripherals and drink them for meetings as a tax saving, your spending will increase and it will be just a waste.
  For freelance engineers, tax saving means “reducing taxable income”, but if you waste money because you want to reduce taxable income, you will be overwhelmed. When arranging peripherals, think carefully about “Is it really necessary for my work now?” And “Is it an up-front investment for my future work?” Think about whether a drinking party that doubles as a meeting is also a really beneficial dinner.
  If you work while you’re drinking, you’ll increase your sales, and if you study a new language, you’ll have a wider range of work.
  It is important to think carefully about whether or not the expenditure will have an investment effect and spend the money.

  Reference: Tax savings and waste are a single piece of paper | Money Forward Bizpedia

  4. Easily save taxes by using tax return software!

  So far, I have explained various tax-saving measures, but I think that some people are not good at tax measures in the first place. But don’t worry. Even people who are not good at tax calculation can easily complete tax returns and save taxes by using convenient accounting software.
  Even for blue filing, which is often shunned, there is now convenient final tax filing software. There are plenty of video sites that teach you know-how, so if you have a problem, you should refer to it.
  If you still can’t get rid of your weaknesses, you can take the plunge and consult with your tax accountant. It costs money, but there is room for consideration if you think that you will spend the time and effort required for tax processing with money and work hard.

  Introducing recommended tax return software. Please see here as well.

  Compare and select tax return software recommended for freelance engineers!

  5. Summary

  With convenient accounting software and tax return software, you can easily start tax-saving measures without specialized knowledge. Even so, there may be many people who haven’t touched it until now because they don’t know the existence of the system and it’s troublesome. It may be difficult to deal with everything suddenly, so please refer to the tax-saving measures ranking and try to take tax-saving measures little by little.

  In addition, freelancers are highly conscious of “I want to keep the funds on hand” and “I want to use the existing funds to move on to the next business”, which is one of the reasons why tax saving is not started. Isn’t it?
  Considering that the funds on hand will be used for future reserves and assets, iDeco and small business mutual aid should be easier to challenge. First of all, why not start with a bet within a reasonable range. You can save yourself in the future and save taxes, so you are two birds with one stone.