The '3-Million-Yen Side Hustle Issue' is classified as 'Business Income vs. Miscellaneous Income' based on the presence of bookkeeping, not the amount of income
Hello, this is Shichau-Ojisan (hereinafter referred to as 'Shicha-Oji').
Breaking news! 🐤
The '3-million-yen side hustle issue,' which had been causing a stir among salarymen (company employees) working hard on their side hustles, has been resolved suddenly and safely thanks to a new notification released by the National Tax Agency today, October 7th (clap, clap, clap, clap~).
Originally, the National Tax Agency's 'Draft Amendment to the Basic Income Tax Circular' published in August stated that, in principle, side hustle income of 3 million yen or less per year would be classified as 'miscellaneous income'.
This was a proposed amendment targeting so-called 'side hustle tax avoidance,' designed to close the loophole in a 'tax avoidance scheme' where individuals accumulate expenses to report a loss despite having no real side business, and then offset that 'business income (loss)' against their main 'salary income (profit)' to reduce their tax burden.
By classifying side hustle income of 3 million yen or less per year as 'miscellaneous income' rather than 'business income,' it becomes impossible to offset losses against the main 'salary income (profit),' and even if the side hustle is profitable, the 'Blue Return Special Deduction' (up to 650,000 yen) cannot be deducted.
This appeared to be a very unacceptable proposal for those who were working hard on their side hustles, and as a result of over 7,000 opinions being submitted during the public comment period, the National Tax Agency ended up significantly revising the 'Draft Amendment to the Basic Income Tax Circular' that it had published in August.
Certainly, reaching 3 million yen in annual side hustle income is quite a high hurdle, and even if there are years where you take risks to expand your business or invest in equipment and end up with a loss, you cannot offset that loss. I don't think it's sustainable to 'bear the full loss yourself' while 'paying taxes strictly on any profits.'
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Presence of bookkeeping, not income amount
In the National Tax Agency's new notification, it has been revised so that side hustle income for salarymen (company employees) will be classified as 'business income' if there are books and records, and as 'miscellaneous income' if there are no books and records.
In other words, the 3-million-yen figure from the '3-million-yen side hustle issue' is no longer relevant. By preparing and keeping books and records, it will be treated as 'business income' just as before, and of course, you can also offset losses.
If you look closely at the new notification, it seems that if your income exceeds 3 million yen, it may be classified as 'business income' (depending on the circumstances) even without books, but if you have that much income, there is no reason not to file a Blue Return and save on taxes.
Even if you have books and records, if it is judged to be 'side hustle tax avoidance' with no actual business substance, it will not be recognized as 'business income' and you will not be able to offset losses. However, if there is a real side business, whether it is profitable or not, it is unlikely that it will be denied.
Therefore, the conclusion is very simple.
Whether it is your main job or a side hustle, it will (basically) be classified as 'business income' by keeping and storing books, so salarymen (company employees) who are doing side hustles just need to properly file a Blue Return and keep their books from now on.
Many people think, 'Blue Return seems difficult and troublesome...', but that is only because 'they only know difficult and troublesome methods'.
'Shicha-Oji' is a sole proprietor who dissolved his corporation, and I perform a 'Japan's easiest Blue Return' every year. I don't need a tax accountant or an accounting firm, so the cost for the Blue Return is only about 1,000 yen per year for cloud accounting software.
Even if you have no knowledge of bookkeeping or accounting, by using accounting software, the various books required for a Blue Return are automatically generated, so there is nothing to worry about.
The following article {A thorough explanation of tax-saving measures for sole proprietors (freelancers) and how to file a Blue Return without wasting money!} is intended not only for sole proprietors (freelancers) but also for salarymen working hard on side hustles, so if you are interested, please take a look.
You should start gathering information for your blue tax return with plenty of time to spare, rather than waiting until the tax filing season or the last minute!
Please also refer to the following {list page of 'Tax Saving and Tax Return (Blue Return) Articles' by Shichau Ojisan (Shichaoji)}.
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That concludes – The '3 Million Yen Side Hustle Issue' is classified as 'Business Income vs. Miscellaneous Income' based on the presence of bookkeeping, not the amount of income –.
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