The 2024 tax reforms bring several significant changes to withholding tax procedures, specifically affecting individuals earning over 20 million yen annually and self-employed professionals. This blog highlights the key aspects of these reforms and provides guidance on handling mandatory deductions in your tax return.
High Earners (Annual Income Exceeding 20 Million Yen)
For individuals with annual income exceeding 20 million yen, the following adjustments in deductions must be noted:
Basic Deduction ExclusionFor incomes over 20 million yen, the basic deduction is gradually reduced and is entirely eliminated for incomes above 25 million yen. Consequently, the withholding tax statement may not reflect any basic deduction.
How to Process: When preparing your tax return, ensure that the basic deduction is excluded as required by law.
Dependent Deduction ReviewThe eligibility criteria for dependent deductions have been tightened, potentially disqualifying some high-income earners from claiming this deduction.
How to Process: Verify the dependent deduction eligibility in your tax return and exclude any ineligible dependents.
Recalculation of Donation DeductionsHigh earners may face changes in the deduction limits for donations, including those made through the Furusato Nozei program. Use the official receipts provided by municipalities to calculate the correct deductible amount.
How to Process: Confirm and reconcile donation deduction amounts with the withholding tax totals in your tax return.
Self-Employed Individuals
Self-employed individuals must adhere to the following changes when processing deductions:
Enhanced Requirements for Blue Return Special DeductionElectronic bookkeeping requirements have been expanded. Non-compliance will reduce the special deduction for blue returns from 650,000 yen to 550,000 yen.
How to Process: Ensure compliance with electronic bookkeeping standards to claim the full 650,000-yen deduction.
Accurate Calculation of Medical Expense DeductionsExpenses classified as business-related cannot be claimed under medical expense deductions. Ensure a clear separation between personal medical expenses and business costs.
How to Process: Submit a detailed medical expense statement and confirm that claimed expenses are not listed as business expenses.
Input Tax Credit for Consumption TaxUnder the invoice system introduced in October 2023, input tax credits will only apply to purchases supported by qualified invoices.
How to Process: Verify that input tax credits are based solely on invoices issued by registered suppliers.
Practical Tips for Filing
Carefully Review Withholding Tax StatementsHigh earners should closely check the details in their withholding tax statements and ensure accuracy before preparing the final return.
Avoid Double Deduction of ItemsCross-check overlapping conditions between multiple deductions to prevent errors or duplicate claims.
Leverage e-Tax for FilingUtilize electronic filing systems to streamline the process, minimize calculation errors, and ensure compliance with deduction rules.
The 2024 tax reforms require meticulous attention to updated deduction rules, especially for high-income earners and self-employed individuals. Understanding and correctly applying these changes in your tax return can help minimize unnecessary tax liabilities and ensure compliance with regulations.
This is especially important this year because of the reduction in withholding taxes.
Please feel free to contact us if you have any questions.
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