A deduction method that subtracts a fixed amount from gross income when calculating taxable income. There are 15 types including the basic deduction, spousal deduction, social insurance premium deduction, and life insurance premium deduction, serving to reflect the taxpayer's personal circumstances in their tax burden. The larger the deduction, the lower the taxable income and consequently the tax liability.
Overview and Priorities of All 15 Income Deduction Types
The 15 types of income deductions are broadly classified into "personal deductions" and "material deductions." Personal deductions are based on the taxpayer's own situation and family circumstances, including the basic deduction (480,000 yen), spousal deduction (up to 380,000 yen), dependent deduction (380,000 to 630,000 yen), and disability deduction. Material deductions are based on expenditures, including social insurance premium deduction, life insurance premium deduction (up to 120,000 yen), earthquake insurance premium deduction (up to 50,000 yen), medical expense deduction, and donation deduction (including Furusato Nouzei).
To maximize tax savings, note that social insurance premium deduction and basic deduction are applied automatically. Next, life insurance premium deduction and earthquake insurance premium deduction are applied simply by declaring them during year-end adjustment. The commonly overlooked ones are medical expense deduction and the self-medication tax system, which require filing a final tax return. If annual medical expenses exceed 100,000 yen, consider the medical expense deduction; if over-the-counter drug purchases exceed 12,000 yen, consider the self-medication tax system.
Practical Checklist for Applying All Eligible Income Deductions
For salaried employees, most income deductions are processed through year-end adjustment, but medical expense deduction, donation deduction, and casualty loss deduction can only be applied through a final tax return. When submitting year-end adjustment documents, forgetting to attach life insurance premium deduction certificates or mortgage year-end balance certificates means missing out on deductions, so it is practical to keep all certificates that arrive from around October in a dedicated folder.
iDeCo (individual-type defined contribution pension) contributions are fully deductible as income deductions under the "small enterprise mutual aid premium deduction." Salaried employees apply this through year-end adjustment, while self-employed individuals apply through their final tax return. The annual contribution limit is 144,000 to 276,000 yen for salaried employees and 816,000 yen for the self-employed. A person with a 20% income tax rate contributing 276,000 yen annually saves approximately 83,000 yen in combined income and resident taxes. Missing applicable deductions means "paying taxes you don't need to pay," so making annual checks a habit is essential.
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