Running a side business in Tokyo used to feel like a secret. Many people worked from their living rooms, earned money from global clients, and stayed under the radar. But as of 2026, those days are gone. The Japanese government has updated its digital systems to track secondary income more closely than ever. Whether you are a consultant, an online teacher, or a crypto trader, you need to understand how these new rules change your wallet. This post explains the system in simple terms so you can save money and stay out of trouble.
The Big Changes For Your Taxes
The tax laws for 2026 bring a few small wins but many more rules. The government raised the "basic deduction" to 620,000 yen. This is the amount of money you don't have to pay tax on. It sounds great, but inflation and new digital tracking mean most people will actually pay more if they aren't careful. The tax office now uses AI to look at bank transfers and online platform sales, so hiding side income is almost impossible.
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Higher basic deduction amount
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Stricter digital income tracking
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New AI audit tools
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Updated e-Tax filing requirements
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Higher penalties for late filing
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Lower limits for paper receipts
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Mandatory My Number Card usage
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Direct bank account data links
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Increased focus on foreign remittances
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Flat resident tax rate impact
Blue Return Versus White Return Decisions
If you make money on the side, you have to choose how to report it. Most people start with the White Return because it is easy. You just list your total income and total costs. However, the Blue Return (Aoiro Shinkoku) is the real secret for saving money. It requires more paperwork, but it gives you a huge 650,000 yen deduction. This can often make your side-hustle tax bill nearly zero.
To use the Blue Return, you must apply in advance at your local tax office. You also need to use "double-entry" bookkeeping. In the past, this was very hard for non-Japanese speakers. Now, many apps translate your bank transactions into the right format for you. Using the Blue Return is like getting a massive discount on your taxes just for being organized.
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Large 650,000 yen deduction
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Three-year loss carry-forward
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Family member salary deductions
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Advanced bookkeeping software needs
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Pre-approval application deadlines
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Electronic filing bonus credits
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Better protection during audits
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Asset depreciation for tech
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Clearer business expense categories
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Professional status for visa purposes
Saving Money With Home Office Costs
Since most side hustles in Tokyo start at home, you can turn your rent into a tax break. You cannot deduct all your rent, but you can deduct the portion you use for work. For example, if your work desk takes up 20% of your apartment, you might be able to deduct 20% of your rent. The tax office in 2026 is very picky about this, so you need to be exact.
You can also deduct things you use for your business every day. If you buy a new laptop for 250,000 yen, the 2026 rules allow many small businesses to deduct the whole cost at once. This is much better than waiting years to get the tax benefit. Even your internet bill and electricity can be partially deducted if you prove they are needed for your side job.
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Rent percentage for office space
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Monthly internet bill portions
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Electricity and heating costs
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New laptop and monitor purchases
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Software and AI subscriptions
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Professional books and courses
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Business meeting coffee costs
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Local train fare records
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Website hosting and domain fees
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Ergonomic office chair costs
The Resident Tax Sticker Shock
Most foreigners focus on the national income tax because that is what they file in March. But the real "boss fight" is the Resident Tax (Inhabitant Tax). This is a flat 10% tax collected by your local ward, like Minato or Shinjuku. It is calculated based on your income from the year before. If you made a lot of money in 2025, you will get a very big bill in June 2026.
This tax is why the Blue Return is so important. When you lower your taxable income on your national return, it automatically lowers your resident tax too. If you don't plan for this, you might find yourself with a huge bill in June and no cash left. Smart side-hustlers always put 10% of their profit into a separate savings account to cover this local tax.
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Flat 10% local tax rate
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June payment notification letters
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Quarterly installment payment options
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Ward office collection systems
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Previous year income basis
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Potential employer notification risks
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Personal payment selection choices
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Moving between wards impact
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National versus local tax links
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Late payment interest rates
The Qualified Invoice System Trap
The Qualified Invoice System is now a major part of doing business in Japan. If you sell services to Japanese companies, they will ask for your "Invoice Number." If you don't have one, they might pay you less or stop working with you. This is because they can't get their own tax credits unless you are registered.
Registering for this system means you have to collect and pay "Consumption Tax" (VAT) to the government. In 2026, there are special rules to make this easier for small businesses. You can often pay a smaller, simplified amount of tax. However, it adds another layer of paperwork to your life. You have to decide if the extra work is worth keeping your Japanese clients.
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Registration number for invoices
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Consumption tax collection duties
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Simplified tax filing options
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Impact on local business clients
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Twice-a-year filing requirements
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Competitive advantage for freelancers
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Digital invoice storage rules
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Platform operator tax shifts
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Tax-exempt threshold changes
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Professional accounting software needs
Planning Your 2026 Tax Calendar
The tax year follows the calendar year from January to December. The most important dates are in February and March. This is when you file your "Kakutei Shinkoku" (Final Tax Return). In 2026, the deadline is March 16th because the 15th falls on a weekend. Everything is done through the e-Tax website, which works much better now with smartphone apps.
If you miss these dates, you lose your Blue Return benefits and have to pay extra fees. It is a good idea to start organizing your digital receipts in January. By the time February comes around, you should just be clicking buttons on your computer. Being early means you get your tax refund faster, which usually hits your bank account in April.
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January record-keeping start
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February 16 filing opening
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March 16 final deadline
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April tax refund arrival
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June resident tax bills
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July first installment due
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August secondary payment date
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October third installment due
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November final payment period
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Year-end adjustment company checks
The 2026 tax system in Tokyo is built for transparency. The government knows more about your money than before, but the tools to manage it are also better. By choosing the Blue Return and tracking every single yen you spend on your business, you can turn a scary tax season into a way to keep more of your hard-earned money.