What is Estimated Tax Payment? A Summary for Sole Proprietors on Deadlines, Reduction Applications, and Impact on Cash Flow
One day in June, a "Notice of Estimated Tax Payment" arrives from the tax office. You open it to find that you are being asked to pay several hundred thousand yen at an unexpected time. If you are a sole proprietor or freelancer, you may have experienced this at least once.
"I already filed my tax return in March, so why do I have to pay taxes again now?" or "My profits aren't as high as last year, so do I really have to pay this amount?" During this time of year, we receive many inquiries about estimated tax payments.
To give you the conclusion first, estimated tax payment is not an "additional tax" but an advance payment of income tax. And if your profits this year are likely to be lower than last year, there is a procedure called a "reduction application" to lower the payment amount. However, the deadline for the first installment reduction application is July 15th. As of the publication of this article, there is very little time left until the deadline.
In this article, we will explain the mechanism of estimated tax payments, the deadlines for 2026 (Reiwa 8), when to use the reduction application, and the impact on cash flow.
What is Estimated Tax Payment—The Income Tax "Advance Payment" System
Estimated tax payment is a system where you pay a portion of your income tax for the current year in advance, based on the amount of income tax from the previous year.
Specifically, it applies to those whose "estimated tax base amount," calculated based on the tax amount declared for the previous year, is 150,000 yen or more. If you are eligible, you will receive a "Notice of Estimated Tax Payment" from the tax office around mid-June (those using e-Tax may receive notification via electronic data).
Payments are divided into two installments per year.
First installment: July 1st to July 31st (one-third of the estimated tax base amount)
Second installment: November 1st to November 30th (one-third of the estimated tax base amount)
The deadline for the first installment for 2026 (Reiwa 8) is July 31, 2026 (Friday).
The remaining one-third is settled during the final tax return the following year. The amount paid through estimated tax is deducted from the tax amount at the time of the final tax return, and if you have overpaid, it will be refunded. In other words, it is not a system where you "lose money" in total. However, it definitely affects cash flow in that your cash on hand goes out earlier.
Note that estimated tax payment is a system for individual income tax. For corporations, there is a similar mechanism called "interim filing and interim payment" of corporate tax, but the deadlines and calculation methods differ, so this article focuses on individual estimated tax payments.
Consider a reduction application if "profits are likely to decrease this year"
The amount of estimated tax payment is calculated mechanically based on the previous year's results. The higher the profit you made last year, the higher your estimated tax payment will be.
However, business conditions are not the same every year. "A contract with a major client has ended," "profits are being squeezed by rising costs or labor expenses," or "I have been ill and had to reduce my operations"—if your projected profit for this year is likely to be lower than last year due to such circumstances, it can be difficult for your cash flow to pay the estimated tax based on the previous year's figures.
That is why the "Application for Reduction of Estimated Tax Payment" is available.
If your "estimated tax amount" calculated based on the situation as of June 30th of that year is expected to be less than the notified "estimated tax base amount," you can submit a reduction application to the tax office. If approved, the estimated tax amount will be reduced to the amount based on your estimate.
The main cases where a reduction application is accepted include the following:
If you have closed your business, suspended operations, or become unemployed
If it is clearly expected that this year's income will be lower than the previous year due to poor business conditions, etc.
If you have suffered damages due to disaster, theft, or embezzlement.
If you expect a significant increase in income deductions, such as high medical expenses or an increase in dependents.
The deadline is crucial here.
Reduction application for the 1st and 2nd installments: By July 15 (July 15, Wednesday in 2026).
Reduction application for the 2nd installment only: By November 15 (estimated based on the situation as of October 31).
The procedure involves filling out the 'Application for Reduction of Estimated Income Tax and Special Reconstruction Income Tax' with your estimated income and tax amount for the year, along with the basis for the calculation, and submitting it to the competent tax office either in writing or via e-Tax. Since you need to fill it out based on documents that serve as the basis for your estimate (such as ledgers or records showing sales status), keeping daily bookkeeping up to date is essential here as well.
Note that the reduction application is a procedure based on an 'estimate.' If your actual annual income exceeds your estimate, you will pay the difference during the final tax return the following year. Please be aware that this is not something you can simply 'estimate as low as possible'; you are required to provide an estimate based on reasonable grounds.
Options if you do not apply for a reduction, and the risks of not paying
If you expect your profits to be the same as or higher than the previous year, you are not eligible for a reduction application, so you must pay by the deadline.
There are multiple payment methods available. These include transfer tax payment (direct debit), direct payment via e-Tax, internet banking, credit card payment, smartphone app payment, convenience store payment (QR code), and payment at the counters of financial institutions or tax offices. For those using transfer tax payment, we recommend checking your account balance in advance to ensure there are sufficient funds on the withdrawal date (please check the information published by the National Tax Agency for the 2026 transfer dates. Unconfirmed (requires checking for the latest information)).
It is important to note that if you do not pay by the deadline, you may be subject to delinquent tax. Since the rate of delinquent tax is reviewed annually, please check the latest rate on the National Tax Agency's website. It is not something you can ignore just because 'it will be settled in the final tax return'; the principle is to handle it within the deadline.
If your cash flow is tight and it is difficult to pay in a lump sum, you may be able to use systems such as tax payment deferral by consulting with the tax office. It is important to act early rather than leaving it unattended.
Incorporating estimated tax payments into your annual plan as a 'cash flow event'
What business owners often struggle with regarding estimated tax payments is not the calculation of the tax itself, but the fact that it 'comes when you have forgotten about it.'
The final tax return in March, the first installment of estimated tax in July, and the second installment in November. For sole proprietors, this is in addition to interim consumption tax payments and resident/enterprise tax payments. If you incorporate the amount and timing of each into your annual cash flow statement in advance, you won't have to panic when the notice arrives.
Also, the judgment that 'profits seem to be decreasing this year' is only possible if you can grasp your profit and loss as of June 30 in a timely manner. If your trial balance is only available several months late, it is difficult to make a reasonable estimate by the July 15 deadline for the reduction application. Building a system where monthly figures are closed quickly and accurately pays off in situations like this.
If you are unsure, consult a professional early
While the estimated tax payment system itself is simple, decisions such as 'whether to apply for a reduction,' 'how much to estimate,' and 'how to secure tax payment funds' need to be made while looking at the overall business situation. If you have a tax accountant, we recommend consulting them as soon as you receive the notice.
If you do not have a tax accountant or find it difficult to consult your current one, using a tax accountant referral service is one option. Bizpla introduces tax accountants with strong proposal capabilities at rates lower than the market average for free. We will help you find a tax accountant who can assist you according to your business situation, from consultations on estimated tax payments and tax funds to building a system that allows you to grasp monthly figures quickly.
▶ Get a free tax accountant referral: https://www.bizplatform.co.jp/bp_lp001/
*This article is based on general information as of July 2026. Details regarding tax rates, deadlines, and procedures are subject to change, so please check the official information from the National Tax Agency or other relevant institutions for the latest updates. For individual decisions, please consult a professional such as a tax accountant.
