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Financial Planning Skills Test, Grade 3 | Practical Income Tax, Deductions, and Filing Cases

1 / 100.0s

Problem 1

An employee receives salary from one employer, has salary receipts of no more than JPY 20 million, and has completed year-end adjustment. The employee's only income other than employment and retirement income is JPY 180,000 from side work. The employee decides to file for a refund to claim the medical expenses deduction.

Which treatment of the side-work income is most appropriate?

View explanation

The JPY 200,000 rule is a filing exemption for certain employees, not a tax-free allowance. Once the employee files to claim the medical expenses deduction, the JPY 180,000 of side-work income must also be included. Not being required to file is different from being allowed to omit income from a return that is filed.

Problem 2

A person with total income and similar amounts of at least JPY 2 million paid JPY 220,000 for hospitalization and JPY 150,000 for unrelated dental treatment. The person received a JPY 300,000 benefit for the hospitalization and had no other medical costs or reimbursements.

What is the ordinary medical expenses deduction?

View explanation

The hospitalization benefit offsets only the hospitalization expense it was intended to cover, up to JPY 220,000. Its JPY 80,000 excess is not offset against the unrelated dental cost, leaving JPY 150,000 of qualifying cost. After the JPY 100,000 floor, the deduction is JPY 50,000; the benefit is not simply subtracted from all JPY 370,000 of costs.

Problem 3

In the same year, a taxpayer meets the requirements for both the ordinary medical expenses deduction and the self-medication tax regime. The taxpayer can calculate both possible deduction amounts before filing.

Which method of application is most appropriate?

View explanation

The self-medication regime and the ordinary medical expenses deduction are alternatives and cannot both apply for the same year. After one is selected in a return, the taxpayer cannot switch through a claim for correction or an amended return, so the comparison must be made before filing.

Problem 4

In each case, the taxpayer personally owns the damaged property and receives no insurance reimbursement.

Which loss may qualify for the casualty loss deduction?

View explanation

The deduction may cover assets ordinarily needed for daily life when damaged by disaster, theft, or embezzlement, so the flood-damaged household furniture may qualify. Fraud is not an eligible cause, a vacation home is not ordinarily needed for daily life, and business inventory is a business asset rather than an eligible personal asset.

Problem 5

The person who paid the premiums receives JPY 1.6 million as a lump-sum maturity benefit from life insurance. Premiums paid total JPY 700,000, there is no other occasional income, and the contract is not subject to separate withholding taxation.

How much is included in aggregate income?

View explanation

Occasional income is JPY 1.6 million minus JPY 700,000 of premiums and the JPY 500,000 special deduction, or JPY 400,000. One-half of that amount, JPY 200,000, is included in aggregate income. The full amount after the special deduction is not included, and premiums are deducted before the calculation.

Problem 6

An ordinary employee retires after 25 years and receives JPY 20 million of retirement pay. It is not short-term retirement pay, specified officer retirement pay, or disability retirement, and there is no other retirement payment.

What is the amount of retirement income?

View explanation

The deduction for 25 years is JPY 8 million plus JPY 700,000 times the five years beyond 20, totaling JPY 11.5 million. Retirement income is one-half of JPY 20 million minus JPY 11.5 million, or JPY 4.25 million. The rule does not apply JPY 700,000 to all 25 years or halve the payment before subtracting the deduction.

Problem 7

A rental property produces a JPY 1 million loss, including JPY 400,000 of interest on debt used to acquire the land. The loss does not concern a vacation home, partnership, or trust, and no other exclusion applies.

How much of the real estate income loss can be offset against positive employment or other income?

View explanation

A real estate income loss can generally be offset against other income subject to aggregate taxation, but the portion corresponding to interest on debt used to acquire land is excluded. The offsettable amount is therefore JPY 1 million minus JPY 400,000, or JPY 600,000.

Problem 8

Under a life insurance policy on the wife, the husband paid all premiums and the child received a lump-sum death benefit when the wife died.

To which tax is the death benefit generally subject?

View explanation

The insured is the wife, the premium payer is the husband, and the beneficiary is the child, so all three are different. The benefit is treated as a gift from the premium payer to the child and is subject to gift tax. This differs from inheritance tax when the insured paid the premiums, and income tax when the payer and beneficiary are the same person.

Problem 9

An employee who completed year-end adjustment made hometown-tax donations to four municipalities and filed a one-stop special-procedure application with each. The employee later decides to file an income tax return for the same year to claim the medical expenses deduction.

Which treatment of the hometown-tax donations is most appropriate?

View explanation

Filing a tax return, including to claim the medical expenses deduction, invalidates the one-stop applications. To receive the donation deduction, the employee must report all four donations, including those previously covered by one-stop applications. The five-municipality limit does not permit the one-stop procedure to coexist with an income tax return.

Problem 10

An employee used a home loan to acquire a qualifying home and began living in it during 2026. The employee is applying for the home loan tax credit for the first time.

Which procedure for the first and later years is most appropriate?

View explanation

Even an employee must file a tax return with the required documents for the first year of the home loan tax credit. From the second year, the employee may submit the required credit certificate and year-end balance information to the employer and use year-end adjustment. The credit cannot be completed solely through year-end adjustment from its first year.