Loss if you don't know! How to save tax wisely by knowing your limit amount

Are you hesitating saying "I hear Hometown Tax Donation is profitable, but I don't understand mechanism well..." "Tax return seems difficult"?

Actually, Hometown Tax Donation is system with very large merit where you can enjoy luxurious local specialties from all over the country with real cost of 2,000 yen, and tax of next year is deducted. It can be said that it is one of few "Tax saving measures that anyone can do" especially for Japanese salarymen.

In this article, we explain thoroughly from basic mechanism of Hometown Tax Donation to calculation method of "Limit Amount" of how much you can donate, and "One-Stop Exception System" that can omit troublesome procedures, in easy-to-understand manner even for beginners.

What is Mechanism of Hometown Tax Donation?

Hometown Tax Donation is system where you can "Donate" to your hometown or municipality you want to support. If you donate, you can get return gifts (meat, fish, fruits, daily necessities etc.) from municipality as token of gratitude.

And the biggest feature is that "Part exceeding 2,000 yen of donated amount is deducted from income tax and resident tax".

In other words, what does it mean?

For example, let's assume you donated 40,000 yen. By performing procedure, 38,000 yen which is amount deducting 2,000 yen from this will be cheaper from tax of next year (or refunded).

As a result, you can receive return gifts for donation of 40,000 yen with only burden of substantially 2,000 yen.

STEP 1: Donate to municipality you want to support
STEP 2: Receive return gift and "Certificate of Donation Receipt"
STEP 3: Apply for tax deduction
STEP 4: Tax of next year becomes cheaper

This is reason why Hometown Tax Donation is said to be "Loss if you don't do it".

Up to how much can I donate? Calculation Method of Limit Amount

However, it does not mean that you can donate as much as you want. Depending on annual income and family structure, "Limit of donation amount that can be done with self-pay of 2,000 yen (Deduction Limit Amount)" is decided.

If you donate exceeding this limit, part exceeding 2,000 yen becomes pure "Self-pay (Out-of-pocket expense)". Therefore, preliminary simulation is essential.

Rough Calculation: Guide by Annual Income

Although it is just a guide, limit amount for single person / dual income is as follows.

Annual Income 3 million yen: About 28,000 yen
Annual Income 4 million yen: About 42,000 yen
Annual Income 5 million yen: About 61,000 yen
Annual Income 6 million yen: About 77,000 yen
Annual Income 7 million yen: About 108,000 yen

If you are receiving mortgage deduction or medical expense deduction, limit amount may fluctuate (decrease).
Please verify exact amount with simulator of Ministry of Internal Affairs and Communications portal site or each Hometown Tax Donation site.

Furusato Tax CalculatorCalculate donation limit from income and family structure (based on Japanese tax system)

Is Tax Return Necessary? Utilization of One-Stop Exception System

Please be assured even if you are anxious saying "I have never done tax return...". For company employees who meet following 2 conditions, you can receive tax deduction without tax return by using "One-Stop Exception System".

Conditions for Use of One-Stop Exception System

Must be salaried employee who does not need to file tax return originally (Person whose annual income is 20 million yen or less and does not plan to file tax return for medical expense deduction etc.)
Donation destination for 1 year must be within 5 municipalities

Procedure is Very Easy

Just check "Use One-Stop Exception System" when donating, fill in necessary items on application form sent later, enclose copy of identity verification document and return it. Recently, number of municipalities where online application (smartphone application) is possible with only My Number Card is increasing.

If you donate to 6 municipalities or more, or if you file tax return due to medical expense deduction etc., One-Stop Exception System becomes invalid. Be careful because you need to declare donation deduction again in tax return.

How to Choose Return Gifts Without Failure

Choosing return gifts, which is real thrill of Hometown Tax Donation. We introduce some points to increase satisfaction.

1. Choose "Something a little nice" that you don't usually buy

High-class meat, seasonal fruits, brand rice etc. that are hard to get at supermarket satisfy high.

2. Save household budget with daily necessities

It is also smart way to choose consumables such as toilet paper, tissue, detergent, water, rice. Since these are things you definitely use, it becomes direct saving of household budget.

3. Utilize Regular Flight

If large amount of meat or rice arrives at once, it may not fit in freezer. If you choose product of "Regular Flight", it arrives divided into several months, so you don't have trouble with storage space.

Points to Note and Common Mistakes

To utilize Hometown Tax Donation to maximum, let's be careful about following pitfalls.

Be Careful of Name of Donation

Be sure to donate under "Name of person himself/herself who wants to receive deduction (taxpayer)". For example, even if you donate under name of spouse with no income, since there is no tax to be deducted in the first place, it becomes mere donation. Name of credit card also needs to be person himself/herself.

Be Careful of "Last-minute Donation" at End of Year

Period of Hometown Tax Donation is from January 1st to December 31st. If payment is not completed by 23:59 on December 31st, it is not counted as donation of that year. Since site may be crowded at end of year, let's process with margin.

Let's Check Resident Tax Decision Notice

It is final step to check "Resident Tax Decision Notice" received from company around May to June of next year and confirm if it is deducted correctly. Let's check column of "Donation Deduction" or "Tax Deduction Amount".

Summary: Let's Start with Simulation First

Hometown Tax Donation is system that has only merit if used correctly. If you have not done it yet, let's start by knowing your limit amount (amount possible to donate) first.

Simulate donation limit amount from your annual income
Find favorite return gift and donate
Apply with One-Stop Exception System (or Tax Return)

Just by this, you can save tax while enjoying delicious local specialties. Since it is still in time for this year's portion, please try it by all means.

FAQ: Frequently Asked Questions about Hometown Tax Donation

Q1. If I do Hometown Tax Donation, does cash come back?

No, basically cash does not come back (* In case of tax return, income tax portion may be transferred as refund, but resident tax portion is deducted from tax amount of next year). If you use One-Stop Exception System, full amount is deducted (reduced) from resident tax of next year. It is mechanism that tax to pay in future becomes cheaper, not that cash on hand increases.

Q2. Can I donate to municipality where I live?

Yes, donation itself is possible. However, you cannot receive return gifts from municipality where you live. Since Hometown Tax Donation aims for "Tax revenue transfer to local areas" etc., it is different from purpose of system for residents to donate to local area and receive return gifts. If you aim for return gifts, let's choose other municipalities.

Q3. What happens if I donate exceeding limit amount?

For portion exceeding limit amount, it does not become subject to tax deduction. In other words, self-pay amount is not 2,000 yen, but only amount exceeded becomes pure self-pay (out-of-pocket expense). However, since return gift itself can be received, you can also think that "I bought special product at high price". In order not to lose, we recommend setting amount with margin.