A tax return that is inevitable for freelance engineers. Many people who want to save even a little tax may be wondering, “How much can I spend? How much can I spend? ” In this article, I would like to introduce the criteria and percentage of expenses for freelance engineers to determine what will and will not be.
Use this article as a guide to better understand your expenses, save taxes appropriately, and generate more profit from your sales.
table of contents
- 1. The biggest merit of expense settlement is tax saving!
- 2. How far is it OK? What is the cost of a freelance engineer?
- 3. Percentage of freelance engineer expenses
- 4. Expenses for freelance engineers
- 5. What does not cost a freelance engineer
- 6. Rent and utilities can be used as expenses
- 7. Summary
1. The biggest merit of expense settlement is tax saving!
The biggest benefit of freelance engineers reimbursing expenses is that they can reduce the taxes they pay on their tax returns. Freelancers report the [income amount], which is obtained by subtracting the [total amount of necessary expenses] from the [total amount of sales (income) earned in one year], to the tax office and determine the amount of income tax to be paid.
◆ Profit (income) = Sales (income) -Expenses (necessary expenses)
In other words, the more expenses you have, the lower your income and the less taxes you pay, making it a powerful ally for tax savings .
In the case of office workers, the company will cover the expenses used for business such as commuting expenses and entertainment expenses if you apply for expenses according to the company’s regulations.
But if you’re a freelancer, you have to decide for yourself what to spend.
2. How far is it OK? What is the cost of a freelance engineer?
Expenses for you as a freelance engineer
As mentioned earlier, freelancers have to decide for themselves what to spend.
The biggest point of what can be recorded as expenses and what cannot be recorded as expenses and how to judge is “is it necessary for business?” .
The profession of an engineer may have an image that there is not much corresponding to expenses because your skills become products and sales are made, but when you make a final tax return with “whether or not to make expenses” The amount of money that can be deducted will vary greatly, so be sure to acquire the correct knowledge.
3. Percentage of freelance engineer expenses
Expense ratio refers to the ratio of expenses to income calculated by expense ÷ income.
The more expenses you have, the less income you will have to pay and the less taxes you will have to pay. On the other hand, the tax office may confirm that your expenses are too high for your income.
Therefore, I would like to be aware of the “expense ratio” .
The expense ratio varies depending on the type of business and sales scale, and it is generally said that 50% is a guideline for the expense ratio in the service industry to which the engineer applies. However, the NTA and the tax office do not set specific standards, so in the end it is necessary to balance yourself.
Avoid forcibly trying to save tax, as it will result in a decrease in cash and an overwhelming result.
4. Expenses for freelance engineers
Let’s check the typical items that a freelance engineer can actually record as an expense.
Let’s record expenses so that the contents are correct and save taxes.
- travel expenses
Travel expenses related to work such as meetings and work at the customer’s site.
- Communication costs
Internet fee, mobile phone fee, server usage fee, cloud storage usage fee, etc. are included.
- advertising expenses
This includes the cost of creating business cards and portfolio sites, the cost of participating in New Year’s cards and freelance exhibitions where customers gather.
- Entertainment fee
Eating and drinking charges, etc., that were incurred during work meetings with clients.
Wedding ceremonies and ceremonies for people involved in work are also accepted as entertainment expenses.
- supplies expense
This includes printer ink / copy paper, pens, stationery such as mice and keyboards, business cards and slips, smartphone apps used for work, and desks for business use.
- Depreciation
This applies to personal computers and cars that cost more than 100,000 yen. Depreciation expenses are expenses that are declared in installments, with a useful life, rather than being recorded in a lump sum.
If the acquisition price is 100,000 yen or more and less than 200,000 yen, it can be treated as a “lump-sum depreciable asset” that can be depreciated evenly in 3 years.
In addition, if you file a blue declaration, assets less than 300,000 yen can be treated as full expenses in the year of purchase.
- Miscellaneous expenses
Temporary or non-expensive expenses that do not apply to other accounts. Estimated miscellaneous expenses should be kept within 5 to 10% of the expenses, and if the miscellaneous expenses become huge, it may be the reason for the tax office’s investigation.
- Business tax
There is a “business owner deduction amount” of 2.9 million yen for business tax.
Therefore, if your income does not exceed 2.9 million yen, you will not be subject to personal business tax.
- Pension fund or small business mutual aid
Pension funds and small business mutual aid scheme premiums cannot be used as business expenses, but the entire amount is tax deductible, saving taxes and preparing for the future.
- Full-time salary
If you file a blue filing, you can expense the salary of your family and relatives who are helping you with your business.
5. What does not cost a freelance engineer
From here, we will introduce the ones that will not be an expense.
As a basic idea, the following “expenditures not related to business” are not accepted as expenses .
- Food and drink charges with friends and family
If the person who eats and drinks together, such as a client or employee, is related to the business, it can be included in the expense, but the cost of eating and drinking with friends and family in private is not allowed.
- Health check costs
The cost of a business owner’s health examination cannot be expensed or eligible for medical expense deductions.
Expenses borne by blue business full-time employees (family employees) are also excluded.
- National health insurance and national pension premiums
Since it is an expense for an individual, not a business, it cannot be recorded as an expense. However, as with office workers, it can be deducted from income as a “social insurance deduction”.
- Income tax and residence tax
It’s not an expense because it’s something you have to pay regardless of your business.
6. Rent and utilities can be used as expenses
Expenditures used for both business and private life, such as rent and utilities, are called “housework-related expenses .”
Many of you who work as freelance engineers may be using a part of your home as an office. In such cases, part of the rent and utilities can be expensed.
The apportionment calculation that separates the amount of “housework-related expenses” used for private use from the amount used for business is called “housework apportionment” , and the ratio that can be clearly claimed to have been used for business is recorded as expenses. can.
Then, what is the standard for apportioning housework-related expenses? The standards that are often used are introduced in the next section.
6.1 How to make rent and utilities expenses and precautions
Housework can be apportioned only in the case of blue filing. Please note that in the white declaration, only those who spend 50% or more of the expenses related to housework in the business can apportion the housework.
◆ For rent
Basically, in the case of rent, it is apportioned according to the ratio of the floor area used and the time of use.
[Calculation example when apportioning by the area used] When
a room of 15 square meters is used for business in an apartment with a rent of 180,000 and 60 square meters.
15 square meters ÷ 60 square meters = 25%
expense amount = 180,000 yen x 25% = 45,000 yen
[Calculation example when apportioning by the time used] When
rent is 180,000 yen, 9 hours a day, 20 days a month for business. (30 days a month)
Business part time = (9 hours x 20 days = 180 hours) ÷ (24 hours x 30 days = 720 hours) = 25%
180,000 yen x 25% = 45,000 yen will be the expense.
It is advisable to calculate the moving cost by the ratio of the quantity at the time of transportation, and the key money by the ratio of the same usage as the rent. As for the security deposit, it is assumed that you will return when you move out, so it will be treated as an asset, not an expense.
◆ If you own a house
Expenses can be depreciation, property tax and administration, and mortgage interest. Unfortunately, the mortgage principal is not an expense. This is also divided into usage ratios and divided into household chores.
When calculating the depreciation cost, the cost of acquiring the building, such as the property price, brokerage fee, and registration cost, is calculated, and the depreciation rate is calculated based on the useful life.
Depreciation cost = Building acquisition price x Normal useful life depreciation rate
In addition, utility costs such as water, electricity, gas, and Internet provider charges can be recorded as expenses only for those approved for business use.
6.2 Conditionally Expenses
In addition, we will introduce the expenses that can be used for household chores other than rent and utilities. Please check it against the relevance of your business.
- Costume fee / beauty fee
It is common to think of costumes (suits, shoes, etc.) and beauty costs as “individual living expenses”, and in order to record them as expenses, “it is necessary for business and I used it specially for that purpose. It is necessary to be able to insist.
Specifically, there are cases such as when you go to a special haircut for taking pictures of websites and pamphlets, when you hold a seminar important for sales, or when you go to a special haircut in preparation for a big business talk. increase.
- Entertainment expenses
For ceremonial occasions of companies and organizations related to the business, celebrations and incense can be expensed. For example, weddings and funerals for business partners. Such condolence expenses can be recorded as entertainment expenses.
- Vehicle fee
In the case of freelancers, it is often the case that the car used for work is also used as a regular ride, and it is not permitted to record all car expenses as expenses.
If your family uses one car, it will be apportioned between work and private, but if you clearly separate private and work and own two cars, you can count it as 100% expense.
For example, the car used by the family is a family car, and at work, a light car with a small turn is used.
- Parking fee
If you need a car to move your work, it can be expensed. However, it is only for use at work.
Source: NTA Business owners and taxes
7. Summary
If you are uncertain about whether or not you can make an expense, first look back on whether it is “business-related expenses” or “individual business owner expenses” .
To work as a freelancer, managing expenses and sales is also an important task, even if you are an engineer. Receipts and receipts that prove expenses, including credit cards, must be kept.
In recent years, if you use accounting software, you can do accounting work smoothly without knowledge of accounting and bookkeeping, but in order to properly record expenses and save taxes, you should acquire the correct knowledge yourself. Let’s.
