What is a Blue Form tax return?

The Blue Form tax return (青色申告 - aoiro shinkoku) is a special tax filing system in Japan created for self-employed individuals, freelancers, and small business owners. While it was originally printed on blue paper, most filing is now done electronically. This system provides additional tax benefits in exchange for maintaining detailed business records.

How does it differ from the White Form?

The Blue Form system has several key differences from the standard White Form:

• Record-keeping: Blue Form requires comprehensive documentation of all business transactions, while White Form only needs basic income and expense records
• Tax Benefits: Blue Form offers larger deductions and more flexible handling of business expenses
• Loss Management: Blue Form allows carrying forward losses for 11 years, while White Form doesn't permit this
• Business Expenses: Blue Form provides more flexibility in deducting business-related costs
• Family Employment: Blue Form makes it easier to deduct family employee salaries as business expenses

While the Blue Form system requires more detailed record-keeping, the financial benefits and business advantages make it valuable for most self-employed individuals and small business owners.

How do you apply to file with the Blue Form?

The application process for the Blue Form system requires that you submit an "Application for Filing the Blue Return" (青色申告の承認申請書) to your local tax office within these deadlines:

• New businesses: Within 2 months of starting operations or by January 31st of the first tax year
• Existing businesses: By January 31st of the year you want to start using the Blue Form

The application process is straightforward and you will receive a notification slip on the same day with your acceptance of being able to file using the Blue Form system.

If you miss the deadline to file for the year, you'll have to instead use the White Form. You can always apply to switch over to the Blue Form for subsequent years.

What are the reporting requirements for using the Blue Form?

Once you have applied, you will have to maintain the following business records:

• Daily transaction records of all sales and purchases
• A general ledger tracking all business activities
• Documentation of all business-related assets
• Receipts and proof of all business expenses
• Records of any business-related payments and deposits

It is recommended that you either hire a professional accountant or bookkeeping service, or use accounting software like freee (Japanese only) in order to ensure you meet the reporting requirements. You should be able to generate balance sheet and income statement at the end of the year.

What tax benefits does the Blue Form return have?

The Blue Form system offers substantial tax benefits which means reductions on your taxes. The amount of deduction changes based on your bookkeeping method:

Beyond these basic deductions, the Blue Form provides several additional advantages:

• Business Loss Benefits: You can carry forward any business losses for up to 11 years. This means if your business loses money in one year, you can use that loss to reduce your taxes in future profitable years.
• Family Employment: You can hire family members as legitimate employees and deduct their salaries as business expenses. The tax office recognizes these arrangements more readily under the Blue Form system.
• Bad Debt Protection: When customers haven't paid their bills, you can set aside money as a "bad debt reserve." This reserve can be deducted from your taxes, helping protect your business against unpaid invoices.

Examples of Blue Form tax reductions

We've compiled a few examples of the kinds of tax savings you can expect on your self-employment income if you opt to use the Blue Form system instead of the regular basic White Form. Keep in mind that the actual amounts may vary depending on your own situation, expenses, industry, etc.

As you can see, filing with the Blue Form can save you a lot of money over the years just in tax deductions alone. Be sure to check out our Simple Japanese Tax Calculator if you want to check the numbers yourself!