Once you’ve started your business and started working as a freelance web designer, you’ll need to file a tax return each year. As a sole proprietorship, you also have to do other work such as bookkeeping.
However, even if it is said to be a web designer’s expense, many people may not have a clue. But there are unexpectedly many things, and if you don’t know, you will lose. Know what you can deduct as expenses on your web designer’s tax return.
What exactly are expenses?
What kind of money is an expense? If you have never filed a final tax return and are unsure about it, you should learn more about expenses.
Expenses for purchasing items necessary for work
Expenses are the expenses incurred when purchasing items necessary for work. You often hear in dramas, etc., the lines such as “Please get a receipt because it will be dropped by expenses”. Items used at work include not only those related to the actual work but also entertainment expenses and advertising expenses for smooth work.
If you’ve been involved in work even a little, or you’ve talked about work, don’t forget to get a receipt when you need to pay. You need to calculate your expenses when you file your tax return in early spring every year. Sole proprietorships can either file a white return or a blue return.
Due to the complexity of the blue return filing system and the need to register in advance, sole proprietors tend to shy away from it. However, nowadays accounting software is very good and very convenient. By using accounting software and cloud services, filing a blue tax return is almost the same as filing a white tax return.
If you file a blue return, the deduction amount will be higher than if you file a white return, and there will be more benefits. If you are going to do IT-related work, use accounting software well and try to file a blue tax return.
Money spent to run the business
Expenses include various money spent to run the business, as well as some taxes. Speaking of money used for work, there is an image of raw material costs and labor costs. But running a business costs a lot of money. Expenses may also include things that make you wonder, “What is this?”
Let’s take a look at the 7 basic types of money that can be used for freelance designer expenses.
7 Basic Acceptable Expenses for Designers
Here are seven basic expenses that qualify as designer expenses. Don’t forget to declare these seven items.
Rent and utility costs for home/office
If you are working in a house that you live in as your home, or if you are renting an apartment or condominium, that is, if your home is also used as an office, rent and utilities are also recognized as expenses. However, 100% of the costs are not acceptable. Only the portion of your home that you use as an “office” is recognized as an expense.
For example, in the case of 1K condominiums, etc., a considerable percentage may be permitted, but in the case of a single room in a detached house, the percentage will be considerably less. In such a case, it is called ” proportional division “, and the ratio of the used place and the unused place is calculated, and only the ratio of the used place is recorded from the rent and property tax.
In the case of Internet-related work, it is common for water and gas bills other than electricity bills to not be allowed.
Internet and telephone communication costs and provider charges
Don’t forget to declare your Internet, telephone, mobile phone, and other communication costs, as well as provider charges. Since it is an Internet-related job, this is an expense. Mobile phone bills, provider bills, etc., which may be used for private purposes, will still need to be apportioned. If it is troublesome, it may be good to separate work and personal use.
Cost of software and computers used at work
Expenses such as software and computers used at work will also be expenses. However, the treatment differs depending on the price at that time. If the value of one item exceeds 100,000 yen, it will be depreciated. The number of years is determined depending on the item, for example, it is four years for a personal computer.
Depreciation expense is the amount that can be recorded as an expense every year when you buy a high-priced item, divided by the number of years determined, and other high-priced items such as automobiles. If the equipment is necessary for work and exceeds 100,000 yen, consult with a tax accountant to see if it is depreciation or an expense.
Advertising expenses for advertising activities
Advertising costs will also be expensed if you conduct promotional activities. If you haven’t advertised at all so far, let’s advertise by all means because it will fall on expenses. If you create a site that uploads a portfolio of the work you have done and update your blog frequently, even if the blog is paid, it will be an expense.
Also, if you make a business card, it will be an advertising activity. Business cards still have great power even in the paperless era. It will be an expense, so let’s make a stylish business card like a designer.
Expenses for books and materials necessary for work
Expenses used for technical books and materials necessary for work are also recognized as expenses. If you shop online, be sure to keep your receipt.
Transportation expenses required for work travel
Transportation expenses necessary for traveling to work, seminars, gatherings of the same trade, etc. are also recognized as expenses. Keep a record of what kind of work was done that day, and what kind of seminars, schools, and gatherings were held.
Entertainment and entertainment expenses used in business relationships
If you have lunch with a colleague, a client, or a colleague with whom you share work, or if you have a meeting while eating dinner, you can record it as entertainment and entertainment expenses. Don’t forget to always get your receipt. Receipts and receipts must be kept for 7 years after declaration. Organize them in chronological order and keep them in a file, etc., so that they do not fall apart.
What is not acceptable as a designer’s expense
Here are some examples of things that are not acceptable as designer expenses. Please check the difference between what is recognized as an expense.
Expenses for software purchased as a hobby, such as games
Expenses for software purchased or downloaded as a hobby, such as games, as well as comics and novels bought for pleasure are not recognized as expenses. Expenses are money for things that are directly related to work, and things that are essential to work. Anything irrelevant is not an expense.
Daily non-work living expenses
Speaking of things not related to work, the same goes for daily living expenses. Living expenses are separate from work, so they don’t fall as expenses.
Points to note when recording rent and utility bills as expenses
There are a few things to keep in mind when recording rent and utility bills as expenses. Please check before filing.
Clarify the area used as a workplace
Regarding the “proportional division” introduced earlier, it is necessary to clarify the area properly rather than dividing it somehow. To calculate fixed asset tax, rent, etc., let’s clarify once how much area you are using.
Divide the rent and utility bills by time
Also, it will be easier to understand when you divide the utility costs by the time you are working. Rent is calculated not only by area but also by time.
[Summary] Eliminate ambiguity and try to file clean declarations
Calculating expenses is troublesome only for the first year declaration. This is because it is necessary to determine the apportionment of the home used for work and the apportionment of time allocation. From the next year onwards, if you do not change your job or house, you can follow the first year, and you can leave the bookkeeping to the accounting software.
If you obscure your initial calculations, you end up with repercussions later on. Let’s do the calculation properly first and try to file a clean declaration.