Looking at the Bigger Picture of Taxes in Japan
So if you’ve read the entirety of our introductory series on taxes and personal finance, you’re probably thinking 'uh… that’s a lot to take in', right? For those of you who have stuck with us throughout this whole introductory journey through taxes, policies, formulas, premiums, and all the math and logistical headaches that come with them, give yourselves a pat on the back! Hopefully you learned something you didn’t know before, or you gained clarity about something once ambiguous. Maybe you read the sections in succession from start to finish. Maybe you cherry-picked the sections that were most relevant to you. Either way, we’d wager a guess that you’re better off now than when you started, or at least not any worse for the wear.
Each individual section covered is one piece of a much larger puzzle. When isolated from one another and removed from the context of the rest of your financial obligations, aspirations, parameters, etc., they might not mean much. But when combined and integrated into the larger context of your financial life, they can make or break your financial wellbeing. Of course, there’s so much more to come. We haven’t even really scratched the surface of tax write offs, deductions, credit, and for you Americans out there, your patriot tax obligations (heavy sigh). But for now, take a good long second look through the sections that apply to you.
Applying This to Your Own Finances
We strongly suggest that you try applying the math that we used on Front-End Fiona and Freelance Fred to your own income. Try giving it a shot, even if it’s just a thought experiment for the purpose of internalizing these formulas. Make a large pot of coffee, and go through each relevant section one-by-one, depending on your employment status and means of making income. Make a spreadsheet, take notes on post-its, scribble all over your whiteboard — whatever your preferred method is. Got your numbers? Great!
So these are more or less your primary obligations, at least as far as the law and the government are concerned. Whatever they take out of your income, what’s left over on a monthly and yearly basis is what you can afford to spend on other necessities, such as food, housing, clothes, etc. Since tax and insurance obligations are unavoidable, they’re the best place to start when addressing your personal finances, and drafting and adjusting your budget. Living financially wisely (i.e. within your means) begins here.
We, The Tax Trolls
Now it’s time to throw a caveat into the mix here:
The raw numbers you came up with based on each isolated formula are much higher than they will be when you do this in real life.
Remember when we discussed the income adjustment flow in Part 1? Ok well, that’s like a web that connects all of the seemingly isolated pieces in each section. It’s like a feedback loop. Some calculations directly impact others and are factored in automatically, such as basic deductions to both taxable income and health insurance premiums. Others are less obvious and have to be actively applied by the tax payer him or herself.
If you accept all of it at face value without digging any deeper, you’ll be none the wiser. You’ll pay needlessly high rates, and give money away to the government that you might find better use for yourself. Or you can keep going down the rabbit hole and learn how to navigate the web, and all of the strings that connect it. The bottom line is that if you understand how it works and what you can capitalize on, then you can game the system in a totally legal and transparent manner. Doing so will significantly lower your tax liabilities and insurance premiums.
Moving Further Into the Fine Print
Tax law has often been described as a maze, and that’s not far from the truth. To make matters worse, policies change every year as new politicians enter office, and economic fluctuations put novel stress on the national system, demanding new adjustments. But the fundamental structure doesn’t change too dramatically, so there is some solid ground to stand on. The multitude of small details, loopholes, and shifting policies is actually a good thing, because it allows for some degree of customization for each individual in the system. Yes, it’s a pain in the neck to figure out — a headache honestly. Yes, taxes are still one of the two certainties in life, (along with death), so they can’t be completely legally circumvented. Still, there’s a lot of diversity between tax payers’ individual situations, and thus a lot of opportunity for customization. It takes time and countless hours of investigation, but you CAN develop your own tax strategy to get the most out of any income you earn. Hopefully this series provides some solid context on which to begin building that.