Newsletter #011 Starting and Running a Business in Japan – Part 7 Business or Personal? Understanding Mixed Expenses

Helping foreign business owners understand Japan's tax system—one topic at a time.

In our last newsletter, we looked at business expenses.

But what happens when you use something for both your business and your personal life?

This is a common question for small business owners.

A Simple Example: Your Home

Suppose you work from home.

You pay rent for your home every month.

Can you deduct all of the rent as a business expense?

Usually, no.

Part of your home may be used for business, but the rest is your private living space.

If you can reasonably identify the part used for your business, that business portion may be treated as a business expense.

For example:

• Total monthly rent: ¥100,000

• Business-use portion: 30%

• Possible business expense: ¥30,000

The important point is that you need a reasonable basis for the 30%.

You should be able to explain how you calculated it.

Other Common Examples

The same idea may apply to:

• mobile phone costs,

• internet costs,

• electricity,

• a car, and

• other expenses used for both business and personal purposes.

The answer is not always “all” or “nothing.”

You may be able to deduct the part that is related to your business.

What Is Important?

Do not simply choose a percentage because it gives you a larger deduction.

Ask yourself:

“Why is this percentage reasonable?”

For example, you may use a room only for business, or you may calculate the business portion based on business-use time or another reasonable method.

The method should match the actual use of the expense.

Keep Your Explanation

This is an important point.

When you claim part of an expense as a business expense, keep a record of how you calculated the business portion.

For example:

“This room is used as a business office and represents about 25% of the total floor area.”

Or:

“This mobile phone is used for both business and personal calls. The business portion is based on the usage records.”

You may not need a long explanation.

But you should be able to explain the basis if someone asks.

One Important Difference

This topic mainly concerns sole proprietors.

A sole proprietor and the business are not separate legal persons.

For a company, the situation can be different because the company and its owner are separate.

We will discuss company expenses and payments to company directors later in this series.

Key Takeaway

A mixed expense is not automatically 100% a business expense.

If an expense is used for both business and personal purposes, identify the business portion using a reasonable method.

Business use should be supported by facts, not just a percentage chosen for tax purposes.

Coming Next

Starting and Running a Business in Japan – Part 8

What About Your Car?

A car is one of the most common examples of a mixed business and personal expense.

Next time, we will look at how to think about car-related expenses when you use your car for both business and personal purposes.

Prepared by　Kyoji Yasui Tax Accountant Office

Helping foreign business owners understand Japan's tax system with clear, practical guidance.