Updated Cryptocurrency Tax Guide

[ltodesign]

@kristhuy I looked into a service like Koinly, and there are simply too many transactions to make it viable (the cost to use the service would exceed any realized gains).

I've been sorting out the transactions per month and putting them into spreadsheets and I can run calculations that way quite easily. But the question is which calculations need to be made?

For example, the trade logs show the rates for each pair (ex: XRP/BTC) but not the JPY value of each at that specific point in time. Does that matter? I sure hope not, because I'm never going to be able to get that information. I can obviously calculate the gains in terms of a single crypto asset (I do my transactions in ETH), and then convert that with a monthly average exchange rate.

I assume that the main concerns for tax purposes are current holdings and realized gains. I'm hoping that I can just get away with reporting the current balance on the exchange, report realized gains (crypto transferred into BitFlyer and sold for JPY) as miscellaneous income, and then have the transaction reports as evidence if the tax man comes a calling.

Obviously I need to do some more research into how other algotraders are reporting taxes. I was just hoping someone here had some ideas.

Edit: it looks like each trade is taxable? I can calculate number of trades, profits, losses, fees etc in terms of the quote currency. But again, the exchange rate to JPY for each transaction will need to be estimated. This is not going to be fun

 

[kristhuy]

@ltodesign

there are simply too many transactions to make it viable

This is the big downside to algotrading. If you don't design the algorithm with tax accounting in mind from the beginning, you can potentially incur more in compliance costs than you make in profits.

I'm never going to be able to get that information.

Historical JPY rates for many cryptocurrencies are available from various exchanges. You don't necessarily need the realtime rate though. Typically a daily rate for all transactions occurring on the same day is considered sufficient.

then convert that with a monthly average exchange rate.

I suspect that if you do that with a daily rate, instead of a monthly one, you may be fine.

report realized gains (crypto transferred into BitFlyer and sold for JPY)

Yes, "realized gains" are what matter, but you may be misinterpreting the word "realized". It doesn't mean "sold for JPY". It refers to the sale of any asset. Once you sell something, you have realized a gain (or a loss). It may not feel like a realized gain to you, because you don't have any JPY yet, but it is still a realized gain. Don't fall into the trap of thinking that only gains you have converted to JPY or withdrawn from an exchange are taxable.

Note that if you use licensed domestic exchanges you shouldn't have this problem, because domestic exchanges have been instructed by the NTA to do the relevant calculations for account holders and send them annual transaction summaries.

 

[ltodesign]

@kristhuy I would love to use a local exchange for my trading bot, but they aren’t able to provide the speed, volume, fees etc to make them competitive.

Thanks for the advice. This is a big help.

 

[mauriciosr]

@kristhuy I have a question, and hope I'm in the right thread.

I am a regular miner/trader, but until now I either did not need to declare (less than 5 years), or was below the 200k mark in yearly gain, but I'd like to step up my game.

I was wondering if it made sense here to start a company, and do all my crypto related business through it.

Mining equipement & Coins would be bought by the company, and gains obviously made through it. I feel like it would be easier to offset "profits" with "costs" that can be justifiable (electricity, equipement, trip to a crypto conference etc).

The purpose is to avoid (and not evade) as most tax as possible on those gains.

Would it make sense for an operation that would have less than 3m yen turnover yearly?

 

[kristhuy]

@mauriciosr

I feel like it would be easier to offset "profits" with "costs" that can be justifiable (electricity, equipement, trip to a crypto conference etc).

I don't think this is a good reason to start a company. Expenses can already be deducted from crypto gains, even without a company, and while a company would give you more flexibility with respect to how you do your accounting, that flexibility comes with hugely increased compliance costs (e.g., you would very likely need to pay an accountant to do the company's books), as well as a flat corporate tax rate (and personal income tax on any dividends/salary you pull out of the company).

Would it make sense for an operation that would have less than 3m yen turnover yearly?

Whether any particular business should incorporate is always a difficult question, but the short answer is: no, I don't think so. If you were talking about 10-20M/year in profits, then incorporation may become interesting. But at the 3M level I don't think it's worth considering.

Becoming a blue-filing business (sole proprietorship) may be worth considering though, if mining/trading is your primary income-generating activity.

 

[mauriciosr]

@kristhuy I see, I always thought you could only deduct up to 100k worth per year to offset that misc income. But if there is a possibility to balance a bit more the accounts, it may be enough for me.

If I ever manage to reach 10-20m/y in profit by mining/trading, I think it will be my main source of work in term of time/income so yeah it would make more sense.

I'll try to dig in on the sole propietorship, but as it's not yet reaching those numbers it may be too early.

 

[kristhuy]

@mauriciosr

I always thought you could only deduct up to 100k worth per year to offset that misc income.

There is no such limit. You are entitled to deduct all necessary expenses.

You may have been thinking of the rules relating to assets worth more than 100k. The purchase price of such assets must be amortized over multiple years.

FYI, whether you can deduct something like "a trip to a crypto conference" may be borderline, regardless of how your taxes are structured. If you met clients or business partners at the conference, I think you would have a strong case, but if it was solely for your own educational purposes, the argument is harder to make.

The NTA has in the past tended not to accept "self-education" expenses relating to trading-type activities (e.g., a textbook about how to trade stocks). The only real options, I think, if you are unsure about a particular expense, are to ask a tax accountant, or ask the staff at your local NTA office.

 

[mauriciosr]

@kristhuy

There is no such limit. You are entitled to deduct all necessary expenses.

Now that's documentation I need to read, will definitely be helpful for next year 確定申告.

Would you recommend any good book to learn about taxation in Japan? Or should I look for accounting training material?

FYI, whether you can deduct something like "a trip to a crypto conference" may be borderline

I see, but if it's a business partner selling mining equipement for example it may be used then because it's directly related to the business.

Electricity for mining is easily quantifiable for me as I have a wattmetter on each equipement specifically to separate from the rest, so on this point at least I won't have to estimate it.

Now that I know I can have more gains than 200k per year, potentially without triggerring too much taxes, this gets interesting and requires more reading!

 

[kristhuy]

@mauriciosr

Would you recommend any good book to learn about taxation in Japan?

Not really. You can get pretty far just from reading the resources the NTA makes available on its website, along with various tax accountants' blogs/websites.

if it's a business partner selling mining equipement for example it may be used then because it's directly related to the business.

Yeah sounds like you would have a strong case in that situation. Though you'll want to double-check the rules around things like meals and accommodation. Usually meals you consume by yourself are not deductible, for example, because it's assumed that you would need to eat even if you weren't running the business.

Electricity for mining is easily quantifiable for me as I have a wattmetter on each equipement specifically to separate from the rest

Sounds great. That's exactly the kind of precision the NTA loves.

 

[rogueebear]

@mauriciosr Just noticed a few flaws in your past circumstances here:

but until now I either did not need to declare (less than 5 years),

I assume what you mean here is being in Japan for less than 5 years means you're a "Non-permanent Resident for tax purposes"?

If so, then the "Less than 5 years" rule for "foreign sourced income" is irrelevant to crypto currency. Your crypto currency activity for mining/trading gains is "Domestic Sourced Income".

or was below the 200k mark in yearly gain,

Assuming you qualify for the 200,000 JPY Income tax exemption, you still have to declare it on a Resident Tax Return to pay the 10% Resident Tax on it. So it does still need to be declared just on a Resident Tax Return as opposed to an Income Tax Return.

 

[scottsony]

@kristhuy I am a noob but my query
Am i taxed if i never convert the coins to fiat?