What Every Minpaku Owner Should Know About Blue Tax Return Filing

The minpaku (vacation rental) business has been drawing increasing attention in recent years, thanks to its ability to offer guests more affordable accommodation than hotels, as well as its suitability for families and larger groups of travelers. In practice, more and more people are earning supplementary income by renting out part of their own home, or by operating a vacant house or an apartment unit as a rental property. This trend has picked up steam again, especially as inbound tourism demand recovers.

That said, once you start earning income from minpaku operations, you naturally need to file tax returns for income tax and resident tax. One important consideration—whether you’re running minpaku as a full sole proprietorship or earning income as a side business—is whether to file a “blue tax return” (aoiro shinkoku). In this article, we’ll carefully explain the advantages and disadvantages of choosing blue tax return filing as a minpaku owner, the filing procedures involved, and tips for bookkeeping.

We hope this article proves useful both for those filing minpaku income taxes for the first time and for owners considering switching from white tax return filing (shiroiro shinkoku) to blue tax return filing.

What Exactly Is Blue Tax Return Filing?

Overview of the Blue Tax Return System

Whether or not you’re running a minpaku business, sole proprietors in Japan have two options for tax filing: “white tax return” and “blue tax return.” White tax return filing has relatively relaxed bookkeeping requirements, while blue tax return filing requires maintaining a certain level of bookkeeping and preparing financial statements—but in exchange, it comes with various tax benefits.

Blue tax return filing offers benefits such as a special deduction of up to 650,000 yen (with categories of 550,000 yen and 100,000 yen also available), and the ability to carry forward losses for up to three years. In addition, you can take advantage of the “blue return business owner’s family employee salary system,” which allows you to record salaries paid to family members as business expenses. These benefits are considered highly advantageous for minpaku owners whose revenue has grown substantially.

Why Minpaku and Blue Tax Return Filing Are a Good Match

Income Tends to Be Relatively Large

When operating a minpaku property in an entertainment district or near a tourist attraction, monthly revenue can exceed several hundred thousand yen or even surpass one million yen, meaning blue tax return filing offers a greater tax-saving effect than white tax return filing.

Better to Prepare for Future Expansion

As you increase the number of properties or grow your revenue, staying with white tax return filing means you can’t take full advantage of expense processing and the benefits of carrying forward losses.

Many Operations Are Family-Run

In many cases, family members help with cleaning or guest response duties. Using blue tax return filing lets you record salaries paid to family members as expenses, among other benefits.

That said, choosing blue tax return filing does require more effort, such as double-entry bookkeeping and preparing formal financial statements, so if your revenue scale is still small, it’s fine to remain on white tax return filing. However, if your minpaku income stabilizes at 100,000 yen or more per month, it’s well worth considering a switch to blue tax return filing.

Benefits of Blue Tax Return Filing for Minpaku Owners

Let’s look at the specific advantages minpaku owners gain from choosing blue tax return filing, connecting each point to circumstances unique to the minpaku business.

1. Reducing Taxable Income Through the Blue Tax Return Special Deduction

With a blue tax return special deduction of up to 650,000 yen (when certain requirements are met, such as double-entry bookkeeping and electronic filing), you can significantly reduce your net profit through this deduction, thereby lowering your income tax and resident tax. For example, if your annual profit is 2 million yen, receiving the 650,000 yen deduction brings your taxable income down to 1.35 million yen—a substantial tax reduction compared to white tax return filing.

However, to receive the 650,000 yen deduction, you must maintain records using double-entry bookkeeping and prepare financial statements, and additional requirements such as electronic filing and electronic bookkeeping storage now apply. While this requires effort, the tax-saving effect is substantial for a business like minpaku, where revenue tends to fluctuate significantly—making it an attractive option for owners.

2. Carrying Forward Losses for Up to Three Years

Minpaku operations often involve substantial initial investment, and there may be years when equipment and interior renovation costs push you into a loss.

There may also be unexpected losses caused by major external factors, such as the COVID-19 pandemic. With blue tax return filing, you can carry forward any losses incurred for up to three years and offset them against profits in subsequent years. This system doesn’t exist for white tax return filing, and it’s especially valuable for a business like minpaku where revenue can vary significantly from year to year.

For instance, suppose you incur a loss of 1 million yen in your first year due to major equipment investments, but turn a profit of 1.5 million yen in your second year. By using the three-year loss carryforward system, you can offset the second year’s profit against the first year’s loss, bringing your taxable income down to just 500,000 yen—a substantial benefit.

3. Recording Salaries Paid to Family Members as Expenses

In many minpaku operations, it’s not uncommon for family members or relatives to help with guest response or cleaning duties.

If you choose blue tax return filing and use the blue return family employee salary system, you can process salaries paid to those family members as legitimate business expenses. This reduces your taxable income and lightens your tax burden, while also providing your family members with the benefit of formal salary income.

However, to use this system, you must meet certain conditions, such as “the family employee is engaged in minpaku operations on a full-time basis (or for a substantial amount of time) as a general rule” and “there is actual work performed that justifies the salary paid to the family employee.” There are also rules requiring that the salary amount not exceed a reasonable range, so care is needed when implementing this system.

4. Increased Credibility Makes It Easier to Obtain Financing

Using double-entry bookkeeping for blue tax return filing offers the benefit of clearer financial standing, which increases the credibility of your financial statements. When seeking financing from a bank, blue tax return filing tends to give the impression of “a business operator who keeps proper accounting records” more than white tax return filing does, which often works in your favor during loan reviews. This can be advantageous for minpaku owners looking to acquire additional properties or borrow funds for renovations.

5. Data-Driven Business Improvement

Blue tax return filing requires detailed bookkeeping of revenue and expenses, as well as periodically preparing trial balance sheets.

While this may seem tedious at first, it offers the benefit of grasping your financial position in real time and using that information to improve your business operations. This is especially important for minpaku, where revenue can vary greatly depending on seasonal fluctuations and local events—making data-driven pricing adjustments and advertising decisions essential. Taking on blue tax return filing helps make regular income and expense management a habit, making it easier to run through the PDCA cycle.

Challenges and Points of Caution Minpaku Owners Often Face

On the other hand, there are unique hurdles to introducing blue tax return filing. Drawing on top-ranking articles about “minpaku blue tax return filing,” many owners reported struggling with—or advised caution regarding—the following points.

1. The Difficulty of Bookkeeping and Double-Entry Accounting

To apply the blue tax return special deduction (up to 650,000 yen), you’re required to keep records using double-entry bookkeeping.

An increasing number of freelancers and small sole proprietors manage this using cloud accounting software, but those unfamiliar with the process often struggle with journal entries and account categories at first. This is especially true for minpaku, where you must correctly categorize a wide variety of expenses—cleaning fees, supply costs, platform commissions, linen costs, utility bills, loan interest, and more—into the correct accounts.

Cloud accounting software supports automatic journal entry to some extent, but when the payment routes unique to minpaku (such as platform revenue from Airbnb, or direct payments from guests) become complex, it can take time to reconcile everything correctly. Some owners give up at this stage and end up reverting to white tax return filing. It’s recommended to build a system where you keep records regularly and consult a tax accountant whenever something is unclear.

2. Handling Consumption Tax and Accommodation Tax

Once your minpaku business gets on track, your annual revenue may exceed 10 million yen, which can trigger consumption tax filing obligations. As inbound tourism increases and occupancy rates rise, revenue can grow faster than expected, and before you know it, you may find yourself classified as a consumption tax taxable business. Since this adds complexity around consumption tax filing and invoice system compliance, it’s important to manage this carefully alongside your blue tax return filing.

Additionally, some municipalities, such as Osaka, levy an accommodation tax, collecting a set amount per guest per night and remitting it to the local government. Care is also needed regarding how this accommodation tax is collected from guests and how it’s processed in your accounting. The bookkeeping treatment may differ depending on whether you bundle the accommodation tax into an all-inclusive rate or list it as a separate line item.

3. Difficulty in Determining the Household Expense Allocation Ratio

If you’re renting out part of your own home as minpaku, you need to split utility costs, internet fees, property tax, and other expenses between business expenses and personal (household) use. Under blue tax return filing, if you don’t rigorously perform this division, you risk being flagged during a tax audit.

It’s common to determine the allocation ratio based on factors such as the floor area ratio between the residential portion and the minpaku portion, and actual usage patterns (when and for how long guests use the space). If you carelessly claim the full amount as an expense, you may later be asked to file an amended return.

4. Timing for Filing the Blue Tax Return Approval Application

If you want to start filing blue tax returns, you must submit an “Application for Approval of Blue Tax Return for Income Tax” to the tax office by the designated deadline. Typically, this deadline is within two months of your business start date, or March 15 of that year (though this varies depending on conditions such as carryover from the previous year).

If you forget to submit this application, you may only be able to file a white tax return for the current year, with blue tax return filing available starting the following year. Be careful to submit the application in line with your business start date, even if you began your minpaku operations partway through the year.

The Specific Steps of Blue Tax Return Filing

Here, we’ll summarize the general process minpaku owners follow when filing a blue tax return.

Submit the “Blue Tax Return Approval Application” to the Tax Office

If you’re starting a new business, it’s efficient to submit this at the same time as your business opening notification (the “Notification of Opening/Closing of Individual Business” form). If you’ve already been filing white tax returns and want to switch to blue, there’s a set deadline—typically by March 15 of that year—so make sure not to miss it.

Consider Using Accounting Software or Cloud Services

To lower the hurdle of double-entry bookkeeping, many minpaku owners make use of services such as Yayoi Kaikei, freee, and Money Forward Cloud Accounting. These tools offer convenient features such as automatically linking sales data from platforms or importing credit card expenditures to simplify journal entries.

Record Monthly Revenue and Expenses

Record revenue based on booking sites like Airbnb and Booking.com, or based on revenue management reports from your property management company. Expenses span a wide range of categories, including cleaning fees, linen costs, communication fees, utility bills, and supply costs. Take particular care if a household expense allocation is required.

Prepare Financial Statements (Income Statement and Balance Sheet)

At the end of the fiscal year, prepare an income statement and a balance sheet. To receive the 650,000 yen deduction, you must keep records using double-entry bookkeeping and submit a balance sheet. Accounting software will generate these automatically, but be sure to check that the figures are consistent.

Prepare Your Tax Return and File Electronically (or Submit on Paper)

Attach the blue tax return financial statements and prepare Income Tax Return Form B. Filing electronically comes with certain conditions that allow you to receive a larger deduction (up to 650,000 yen)—note the difference from the 550,000 yen deduction. Paper filing is also fine, but electronic filing tends to offer additional benefits and faster refunds.

Pay Taxes or Receive a Refund

After submitting your tax return, pay your taxes by the income tax payment deadline (typically March 15). If you calculate your taxes in advance, you can choose between bank transfer or direct debit payment options; choosing direct debit has the advantage of pushing the payment date to around mid-April. If you’re owed a refund, it typically takes a few weeks to about a month for the money to be returned to your designated bank account.

Frequently Asked Questions About Blue Tax Return Filing

Q1. My Airbnb revenue is paid from overseas—how should I handle this?

A. For revenue earned through platforms like Airbnb or Booking.com, check the platform’s management dashboard to accurately record “when” and “how much” was deposited. There are detailed rules regarding the timing of yen conversion and how to handle exchange gains or losses, but basically, you record everything in Japanese yen. If your cloud accounting software offers an integration feature, it’s best to make use of it as much as possible.

Q2. What should I do if I exceed the threshold for becoming a consumption tax taxable business?

A. If your annual revenue exceeds 10 million yen, you become obligated to pay consumption tax starting two years later. At that point, you may need to comply with the invoice system and prepare consumption tax returns, so it’s important to prepare in advance following the guidance of a tax accountant or your accounting software. It’s a good idea to manage your consumption tax handling alongside your blue tax return filing to avoid confusion.

Q3. I’m running minpaku out of part of my home where I also live with my family. How should I allocate expenses under blue tax return filing?

A. Divide the space into “personal use portions” and “minpaku business portions” based on floor area and actual usage patterns, then reasonably allocate utility costs, internet fees, property tax, and other expenses accordingly. For example, if the room used for minpaku accounts for 25% of the total floor area, you can typically claim 25% of the relevant costs as expenses. It’s best to consult a tax accountant for detailed guidance.

Q4. When is the right time to switch from white tax return filing to blue tax return filing?

A. If you submit the “Blue Tax Return Approval Application” by March 15 of the fiscal year (or within two months of your business opening date, depending on your situation), you can file a blue tax return starting that year. If you have a clear motivation—such as growing revenue, wanting to carry forward losses, or wanting to pay salaries to family members—we recommend switching as early as possible.

Q5. Should I hire a tax accountant, or handle this myself?

A. If you’re comfortable with bookkeeping and your revenue scale is small, you can manage it yourself. However, if your revenue reaches a certain level, hiring a tax accountant offers peace of mind by preventing mistakes. Finding a tax accountant experienced in minpaku will allow them to smoothly handle issues unique to the business, such as household expense allocation and recording platform revenue. Fees typically run around 10,000 to 30,000 yen per month.

Summary and Future Outlook

As we’ve explained regarding the connection between minpaku and blue tax return filing, choosing blue tax return filing as a minpaku owner offers many benefits. However, it also comes with the burden of learning bookkeeping and tax knowledge, and the effort required to prepare formal financial records.

Submit the Blue Tax Return Approval Application Early

File the application at the same time as your business opening notification, or by March 15 of the current year. Be especially careful if you’re starting your minpaku business partway through the fiscal year.

Streamline Bookkeeping Using Accounting Software

Using software with a feature that automatically links revenue data from platforms like Airbnb can significantly reduce the effort involved.

Take Full Advantage of Blue Tax Return-Specific Systems, Such as Household Expense Allocation and Family Employee Salaries

Registering family members as helpers allows you to record their salaries as expenses, further increasing your tax-saving benefits.

Regularly Track Profit and Loss to Improve Your Business

Keeping careful records for blue tax return purposes helps eliminate operational waste and leads to improved profit margins.

Partner with a Tax Accountant or Property Management Company

Entrusting unclear matters to professionals helps prevent mistakes. Expert advice is especially important for matters related to consumption tax or subsidy-related processes.

The minpaku market is on a recovery trend, and properties well-positioned to capture inbound demand—especially in Osaka and Tokyo—can achieve high revenue. At the same time, scrutiny from local governments and residents is intensifying, as illegal minpaku operations that don’t follow the rules have become a growing concern. Complying with regulations and properly filing your taxes is essential for avoiding friction with your local community while sustainably growing your business.

Blue tax return filing is one part of this effort—by demonstrating properly calculated income and expenses along with transparent accounting, you can build a business that earns trust not only from guests but from the broader community as well. By thoroughly understanding the system and solidifying your practices, you’ll be better positioned to seize future opportunities, such as expanding to multiple properties or entering new business ventures.

For Questions About Minpaku or Blue Tax Return Filing, Reach Out to Stay Buddy!

If you’re an owner who’d like to learn more about running a minpaku business or introducing blue tax return filing, or if you feel uncertain about handling things on your own, please feel free to contact Stay Buddy Inc.

We possess extensive know-how regarding minpaku operations and can provide comprehensive support covering both tax and management aspects. Even if you own multiple properties, our property management service can help streamline income tracking and guest communication while advising you on how to maximize the tax-saving benefits of blue tax return filing. Please don’t hesitate to reach out to us.