[Basics Part 19] "Estimated Tax Payments" and "Resident Tax Notices"—Two Surprising Bills in Your First Year

When you finish your tax return, you probably feel relieved, thinking, "It's finally over..."
I understand.
Gathering documents, checking ledgers, preparing the tax return, and submitting it.
You really did a great job.

But please wait just a moment.

After you finish your tax return, two more "bills" will arrive.

Estimated tax paymentsandresident tax notices.

If you thought, "Wait, there's more?" your feeling is correct.
It's a surprise if you don't know about it.
But if you do know, you can prepare properly. This time, I will clearly organize these two things.

1. Estimated Tax Payments—A system for "prepaying next year's income tax"

What are estimated tax payments?

Estimated tax paymentsare a system forprepayingthe income tax for that year.

You might wonder, "The year isn't even over yet, so why am I paying this year's taxes?"

The system works like this.
If the income tax calculated in theprevious year's tax return was 150,000 yen or more, the tax office assumes you will earn about the same amount this year and requires you to prepayone-third of the previous year's income tax amountinJuly and November.

That is how the flow works.

When and from where does the notice arrive?

Around June, you will receive a"Notice of Estimated Tax Payment Amount"from the tax office.
It states, "Please pay X amount by Y date."

Most people are confused when they receive it for the first time, wondering, "What is this?"
Even at accounting firms, we would receive calls every year around June or July saying, "I finished my tax return, but I got another payment slip..."
That is how little-known this system is.

When do estimated tax payments start?

In your first year as a freelancer, you don't have a previous year's income tax, so estimated tax payments do not occur.

The issue isfrom the second year onwards.
If you earn a certain amount in your first year and your income tax exceeds 150,000 yen, you will suddenly receive an "Estimated Tax Payment Notice" in July of your second year.

"I just paid my taxes with my final tax return, and now another bill has arrived"—this feeling is what surprises people who don't know about estimated tax payments the most.

How to prepare for estimated tax payments

If you set aside 30-35% of your sales in the "tax savings account" mentioned in Part 5, you won't panic when the estimated tax payment arrives.
Since estimated tax payments are deducted as "already paid" when calculating your final tax amount after your tax return, it does not result in double payment.

If you think "my business performance might drop this year," you can apply for a reduction in estimated tax payments.
For the July estimated tax payment, you can apply to the tax office between July 1st and July 15th, and for the November payment, between November 1st and November 15th, to have the advance payment amount reduced.
If your income is lower this year than last year, please actively use this option.

② Resident Tax Notice—The fear that it is based on "previous year's income"

What is a resident tax notice?

Resident tax is calculated based on the previous year's income, and you will receive a request starting from June of the following year.

As I mentioned in Part 3, I will explain this in more detail here.

When you were a company employee, it was deducted from your monthly salary so you didn't notice it, but when you become a freelancer, it switches to "ordinary collection" where you pay it yourself.

Around June, you will receive a "Resident Tax Payment Notice" from your local government, and you will pay it in four installments (June, August, October, and the following January).

Why the first year requires special attention

The fact that resident tax is calculated based on "previous year's income" means the following happens.

Even though his income is still low in his first year of independence, he receives a resident tax bill based on the high income from his time as a company employee.
This is the "resident tax wall" for first-year freelancers.

How much will the resident tax be?

The resident tax rate is almost a flat 10% (income-based levy).
To this, a per-capita levy (around 5,000 yen per year) is added.

As a rough estimate,

If you have transitioned from being a company employee, try calculating it based on your income before the transition. You might think, "Is it really going to be this much?" but it is important to be aware of it.

How to prepare for resident tax

Just like with estimated tax payments, you can handle this by setting aside 30–35% in a tax savings account.

However, if you transitioned from being a company employee, please be especially aware that you will receive a resident tax bill based on your income from your time as an employee the previous year.
Even if your income in your first year of independence is low, your resident tax may still be high.

Before you become independent,calculating "how much resident tax you will owe in June of the following year"will help you prepare mentally.
Many local government websites also have estimation tools.

When you combine the two, this is what happens

In the spring and summer of your second year as a freelancer, you may face a rush of bills like this.

Period Content Estimated Amount (for 3 million yen income)
March Income tax payment from tax return Approx. 150,000 yen
June Estimated tax payment (1st installment) Approx. 50,000 yen
June Resident tax notice (4 installments/1st payment) Approx. 80,000 yen
August Resident tax (2nd payment) Approx. 80,000 yen
October Resident tax (3rd payment) Approx. 80,000 yen
November Estimated tax payment (2nd installment) Approx. 50,000 yen
Following Jan Resident tax (4th payment) Approx. 80,000 yen

Throughout the year, these bills will arrive.
If you face them without knowing, you will panic every time thinking, "Another one..."
But if you know about them, you can handle them calmly as "bills you know are coming."

This is one of the things I wanted to convey most through this series.
Knowledge protects your money and your peace of mind.

《Today's Key Points》

• Estimated tax paymentsoccur when your previous year'sincome tax was 150,000 yen or moreof the time. You pay in advance inJuly and Novemberto pay in advance

• The notice for estimated tax payments arrives aroundJune. It is surprising the first time you see it, but it is not a double payment

• In years when your business performance drops, you can"apply for a reduction in estimated tax payments"is possible

• Resident taxis calculated based on the previous year's income. In your first year as a freelancer, your income from your time as a company employee may be the standard

• If you save 30–35% in a tax savings account,you can handle both without panicking

This series will conclude in one more installment.
Next time, we will look back on all 20 installments and provide a summary as a "Freelancer's Money Map."

Thank you very much for your hard work today. Please get some good rest.

Next time (Part 20, the final installment)will be"Summary of Basics: The Freelancer's First-Year 'Money Map'". While looking back on the 20 parts, I will provide guidance for the applied and advanced courses. Please stay with me until the end.

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