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What sole proprietors in Japan can deduct, and how to split shared costs
“Can I deduct this?” is the most common question sole proprietors ask. Japanese tax law gives one test: was the cost necessary to earn your business income? This guide explains that test and how to split costs you share between work and private life, known as kaji anbun.
The basic rule
The Income Tax Act treats necessary expenses as the cost of sales, selling costs, administrative costs and other costs directly needed to earn income. Typical examples:
| Account | Examples |
|---|---|
| Purchases, outsourcing | Goods for resale, design or development work you hire out |
| Rent | Office or storage rent, parking |
| Communication | Internet, phone plans, servers |
| Travel | Train fares to client meetings, business trip hotels |
| Supplies | Stationery, inexpensive computer accessories |
| Depreciation | The cost of computers, cars and other long-lived assets, spread over years |
| Fees | Bank transfer fees, payment processor fees, accounting software |
What you can't deduct
- Living costs: your own meals, everyday clothes, personal trips
- Your own income tax and resident tax (the business share of enterprise tax and property tax is deductible)
- Fines and late-payment taxes
- Money you pay yourself: a sole proprietor's own draws are not an expense
Splitting shared costs
When one cost covers both work and private use, such as rent for a home you also work in, it is a “household-related expense”. The NTA says the part needed for the business is deductible if it can be clearly separated (Income Tax Act Article 45; Enforcement Order Article 96). Separating it is called kaji anbun.
| Cost | Basis for splitting | Example |
|---|---|---|
| Rent | Share of floor space used for work | 15 m² office in a 60 m² flat → 25% |
| Electricity | Share of hours or outlets used for work | 8 of 24 hours → about 33% |
| Smartphone | Share of calls or data used for work | Half of calls are with clients → 50% |
| Car | Share of distance driven for work | 4,000 of 10,000 km → 40% |
What matters is being able to explain why you chose the ratio. Keep a floor plan, work log or mileage record, and use the same basis each year unless your situation changes.
Recording it
With ¥100,000 monthly rent and 25% business use, record the full payment each month, then move the private share out at year end.
| When | Debit | Credit |
|---|---|---|
| Each month | Rent 100,000 | Bank 100,000 |
| Year end (12 months) | Owner's draw 900,000 | Rent 900,000 |
Of ¥1.2 million in rent, ¥900,000 (75%) moves to owner's draw, leaving ¥300,000 as an expense.
Borderline cases
- Café drinks: deductible if you can show you were working there; a client meeting is a meeting expense.
- Books and seminars: deductible when related to your work.
- Computers: items of ¥100,000 or more are normally depreciated. The Small and Medium Enterprise Agency reports that the FY2026 reform expanded the small-asset special rule for Blue Return filers to items under ¥400,000 (up to ¥3 million a year). Check the latest guidance for the start date and conditions.
Keep the evidence
- Keep receipts showing the date, amount, payee and what you bought.
- Invoices and receipts received by email or online must be kept as electronic files (see the electronic transaction rules).
- Keep the records that support your split ratios.
Summary
- A cost is deductible if it was needed to earn business income.
- Shared costs can be split on a reasonable basis, and the business share deducted.
- Keep records that justify the ratio and use the same basis every year.