Fundamentals of Numbers #2 | Why am I forced to pay taxes even when I haven't made a profit?
(*The author is not a tax accountant. As a "professional in accounting practice" who has faced daily finances and bankbooks in corporate settings for 25 years, I am sharing the real movement of funds as seen from the front lines. Please be sure to confirm individual tax decisions with your assigned tax accountant.)
"I worked so hard last year, but honestly, this year is tough..."
At the end of last month (July 31st), was there anyone who froze up after seeing an unfamiliar withdrawal from their bankbook?
That is a system called "estimated tax prepayment."
Even though you haven't filed your final tax return for this year yet,
it is a mechanism that forces you to pay taxes in advance.
"Since I won't know this year's profit until the year is over,
why was I made to pay in advance?"
If you thought that,your intuition is normal.
Today, I will organize the true nature of "not being able to pay taxes," which causes many business owners to hold their heads in their hands, from three perspectives.
① Consumption tax is not your profit, but "money held in trust"
Consumption tax that you receive along with your sales.
This may feel like a part of your sales, but its true nature is
slightly different.
It is money you hold on behalf of customers to pay later. It is, so to speak, "pass-through" money.
If you use this as operating capital because "it's on hand,"
a situation occurs where "the money that should be there is gone" when it comes time to pay taxes.
Misconception: A portion of the profit I earned
Truth: Money that is only being temporarily held in the safe
In fact, the latest data from the National Tax Agency shows that "more than half of delinquent taxes are consumption tax."
Not "money you earned," but "money you are just holding."
This gap in perception is the biggest factor in tax delinquency.
② The true nature of the "advance payment request" called estimated tax prepayment
Let's take a closer look at the advance tax payment mentioned earlier.
This is a system that applies to those whose income tax amount from the previous year was 150,000 yen or more.
Regardless of this year's earnings, it is a mechanism where you are made to prepay this year's income tax based on 'last year's performance'
.
1st installment (end of July): 1/3 of the previous year's tax amount
2nd installment (end of November): 1/3 of the previous year's tax amount
Final tax return (following March): Settlement of the remainder
'Last year was great, but this year is a struggle...'
Even in such a year, the request for advance tax payment will come relentlessly based on last year's peak performance.
It hits you at a time that is completely out of sync with your actual cash flow for this year.
It attacks you at a timing completely disconnected from your actual cash flow for this year.
(*If you expect your income to decrease significantly this year, there is also a system called 'application for reduction' to lower the advance tax payment amount. Please check with the tax office or your tax accountant to see if you qualify and for the actual procedures.)
③ Tax payment timings occur
at various times throughout the year
Do you think taxes only come once a year during the final tax return season?
That is not the case!
March: Final income tax and consumption tax return
July: Advance tax payment (1st installment)
August: Individual business tax (1st installment)
November: Advance tax payment (2nd installment), individual business tax (2nd installment)
(*If your income is 2.9 million yen or less, you are within the business owner deduction range, so individual business tax does not apply.)
As you can see, payment requests occur multiple times throughout the year at different times.
Instead of preparing for it all at once, you need to grasp in advance 'when and how much will go out' throughout the year.
If you don't have this organized, you will end up panicking each time, wondering, 'Why at this timing?'
💡 Today's Summary
Consumption tax is not profit, but rather 'money you are just holding onto'
More than half of delinquent tax amounts consist of consumption tax
Estimated tax payments are advance requests based on 'last year's performance,' so they
do not align with this year's cash flowTax payment deadlines are spread out multiple times a year, and they tend to overlap significantly in November
Just by knowing these four points, you will be able to see the true nature of that
vague anxiety of 'Why are taxes so tough this year?'
💡 【Do you have 'practical money' concerns that are hard to ask your tax accountant?】
'I'm always nervous about taxes, but I don't know how I should set aside the money...'
'My monthly accounting is a bit loose, and I'm worried about my future finances...'
For business owners like you, I share 'know-how to graduate from loose accounting' based on 25 years of experience in the field of accounting.
If you want to control your numbers yourself, please be sure tofollowand stay tuned.
(*We also offer 'Accounting Consulting + Bookkeeping Support' for those who 'don't have time to manage their own funds' or 'want to leave it to a professional and focus on their core business.' If you are interested, please consult the link in my profile.)
[Next Preview]
Next time (Friday, paid note) will be the practical application part of the series!
I will be delivering: 'Be freed from the fear of taxes forever! A 25-year accounting veteran teaches you the "Tax Payment Fund Savings Rule"'.
I have also prepared an 'Automatic Calculation Simulator (template)' that lets you see at a glance how much you should set aside in a separate account each month. Look forward to it!