If you are a housewife considering starting your own business, simply submitting a Notification of Opening a Business (Kaigyo-todoke) makes you a sole proprietor. However, running a successful business requires more than just paperwork.
While owning even a small business brings significant advantages, it also comes with certain drawbacks. Let’s break down the merits and demerits to help you make an informed decision.
The Advantages (Pros)
- Scalability and Profit Potential: As your business grows, so does your profit. Increasing your income opens the door to potentially incorporating as a company (formally becoming a corporation) in the future.
- Business Expenses: You can record business-related costs as “expenses.” This allows you to deduct these costs from your total revenue, which leads to effective tax savings.
The Disadvantages (Cons)
- Losing Dependent Status (The “扶養” Factor): Not every housewife will automatically be removed from her husband’s dependency status. However, if your total income (revenue minus expenses) exceeds ¥380,000, you must leave your husband’s tax dependency.Note: If you leave the dependency status, you will become responsible for paying your own National Health Insurance and National Pension premiums. It is crucial to calculate how much you need to earn so that these costs don’t outweigh your profits.
- The Burden of Bookkeeping: As a sole proprietor, you must calculate your own income, earnings, and taxes to file with the government.
- Record Keeping: You are required to maintain and store daily transaction records (sales and expense ledgers). This requires knowledge of journal entries, the use of accounting software, or the cost of hiring a tax accountant to handle the bookkeeping for you.
Essential Knowledge: Blue Tax Returns (Ao-iro Shinkoku)
One of the most effective ways to save on income tax is the Blue Tax Return system.
- Tax Deductions: By using the Blue Tax Return system, you can receive a special deduction of up to ¥650,000 when calculating your taxable income. This is a popular choice for many sole proprietors due to the significant tax savings.
- Blue vs. White Returns: While the “White Return” is the basic standard, the “Blue Return” offers more benefits.
- Loss Carryover: If your business records a deficit (loss) while filing a Blue Return, you can carry that loss forward for up to three years to offset future profits.
Regardless of which you choose, keeping receipts and maintaining a ledger is a fundamental responsibility of a business owner. If you find bookkeeping difficult, you can always seek help from a professional.
Summary
You can become a sole proprietor the very day you submit your notification. However, it is never too late to stop and consider whether you are prepared for the changes in insurance payments and your status as a dependent.
By weighing these pros and cons carefully, you can ensure that your transition into business ownership is financially sound and rewarding!