Cryptocurrency Taxation and Profit Calculation | The Complete Guide to Avoid Missing Filing Obligations

How much tax is incurred on profits gained from cryptocurrencies, and at what point does taxation occur? Many investors surprisingly do not have an exact understanding of these aspects. In this article, based on the latest tax system in 2025, we will systematically explain key mechanisms of taxation in cryptocurrency investment, including common overlooked requirements during filing.

Table of Contents

1. Classification and Taxation System of Cryptocurrencies
2. Four Patterns of Actual Taxation Timing
3. Filing Requirements and Profit Calculation Methods
4. Cryptocurrency-Specific Tax Constraints
5. Questions and Answers from Investors
6. For Efficient Tax Management

Classification and Taxation System of Cryptocurrencies

Cryptocurrencies such as Bitcoin and Ethereum are legally defined as crypto assets under Japan’s “Payment Services Act.” Profits arising from these transactions are subject to a tax system that differs significantly from that applied to stocks or investment trusts.

Application of Comprehensive Taxation and Potential for High Tax Rates

Gains from buying and selling cryptocurrencies are classified as “miscellaneous income,” and are taxed under comprehensive taxation, combined with employment income. This is markedly different from the separate self-assessment tax (flat 20.315%) applied to dividends and capital gains from stocks.

In cryptocurrency investments, income tax rates range from 5% to 45%, and including resident tax, the maximum effective rate can reach approximately 55%. Especially for high-income earners, this can lead to unexpectedly heavy tax burdens, making it crucial to consider tax rates from the planning stage.

Characteristics of Miscellaneous Income and Combining with Employment Income

The classification of cryptocurrency transaction income as miscellaneous income means that, beyond the high tax rate on profits, it is also combined with other income such as salary or side business income. If your main job income is high, the profits from cryptocurrencies may be taxed at a higher rate.

It’s important not only to know how much profit you made annually but also to understand your total income at that time and your overall tax situation, as this leads to more effective asset management.

Increased Monitoring by Tax Authorities and Risks of Non-Declaration

The National Tax Agency has been intensifying its scrutiny of cryptocurrency transactions recently, strengthening tax audits of exchanges. If undeclared income is discovered, in addition to the basic non-filing penalty (15-20%), late payment interest will be imposed.

Furthermore, if judged to be malicious, an additional 40% surcharge (heavy additional tax) may be levied. Proper declaration is not only a legal obligation but also a fundamental responsibility as an investor.

Four Patterns of Actual Taxation Timing

The common understanding is that “simply holding cryptocurrencies does not incur taxes,” but in reality, there are many situations where taxation occurs without converting to yen. Understanding specific taxable points is fundamental to tax management.

When converting to Japanese Yen or foreign currency

The clearest taxable event is when you exchange cryptocurrencies for fiat currency. For example, if you buy Bitcoin for 500,000 yen and sell it for 800,000 yen, the 300,000 yen profit is included in taxable income.

It’s important to note that unrealized gains (“paper profits”) until the point of sale are not taxed. You can strategically choose the timing of sale, providing room for tax planning.

Using cryptocurrencies for goods or services

When you directly purchase goods or services with cryptocurrencies, this also triggers taxation. The profit calculation is based on the difference between the acquisition cost at the time of purchase and the fair market value at the time of settlement.

For example, if you acquired cryptocurrency worth 50,000 yen and its value rises to 100,000 yen, and you use it to buy goods at that time, a profit of 50,000 yen is considered to have arisen for tax purposes. This is a key point that taxation occurs even without converting to yen.

Exchange to different cryptocurrencies

Exchanging Bitcoin for Ethereum, or switching to other cryptocurrencies, is also taxable. This is treated as a transaction within exchanges, and the valuation at the time of exchange is converted into yen for tax purposes.

For instance, if you bought Bitcoin for 400,000 yen and its value rises to 600,000 yen, then exchanging it for Ethereum at that point results in a 200,000 yen profit. Frequent switching between currencies can generate more taxable events than expected.

Mining and staking rewards

Cryptocurrencies obtained through mining or staking rewards are also taxable income. The valuation at the time of receipt is used as the base for income calculation.

For example, if you receive 1 Ethereum (worth approximately 300,000 yen at that time) as a mining reward, the 300,000 yen valuation becomes the basis. When you sell this cryptocurrency later, the difference between the sale price and the valuation at receipt is taxed again, creating a two-stage taxation system.

Filing Requirements and Profit Calculation Methods

Not all investors engaged in cryptocurrency investment are required to file a final tax return, but understanding the filing criteria precisely is essential to avoid tax risks. The methods for calculating profits are also limited, and the choice affects tax burden.

Filing criteria for company employees

If a company employee earns more than 200,000 yen in annual miscellaneous income including cryptocurrencies, they are required to file a tax return. Here, “profit” refers to net gains after deducting expenses from the sale proceeds, not the total transaction amount.

If total income from side jobs or other miscellaneous sources exceeds 200,000 yen, filing is also necessary. When multiple income sources exist, the overall sum must be considered.

Multiple employment income and dependents

If you receive salary from multiple companies or your salary exceeds 20 million yen, even small profits from cryptocurrencies become taxable. Special attention is needed if you are a dependent, such as a spouse or student.

If your annual income exceeds 480,000 yen (as of 2025), you may lose your dependent status, which could increase the overall household tax burden. Careful planning of transaction timing is recommended if you are near the dependent threshold.

Features of moving average method and total average method

When calculating the acquisition cost of cryptocurrencies, there are two methods: “Moving Average Method” and “Total Average Method.”

The Moving Average Method recalculates the average acquisition cost each time you make a new purchase, allowing real-time profit and loss tracking. The Total Average Method sums all purchases over a year and calculates an annual average, which is simpler to compute.

Once a method is chosen, it must be used consistently. You submit a “Notification of valuation method for crypto assets” to the tax office at the initial filing to decide which method to adopt. Choosing based on your trading frequency and record management efficiency is important.

Cryptocurrency-Specific Tax Constraints

The tax system for cryptocurrencies differs significantly from stocks and other financial products. Understanding these constraints is essential for effective tax management.

Practical impact of loss offset restrictions

Losses from cryptocurrency trading can only be offset within miscellaneous income. For example, if you gain 300,000 yen profit from Bitcoin but incur a 400,000 yen loss on another altcoin, the net loss within miscellaneous income is 100,000 yen, resulting in zero tax burden for that year.

However, this offset is limited within cryptocurrency income only; it cannot be combined with gains from stocks or real estate investments. Managing each income category separately is necessary, which can limit portfolio flexibility.

No carryforward of losses

Losses incurred from cryptocurrency trading cannot be carried forward to offset future gains. This contrasts with stock losses, which can be carried over for three years.

For example, if you incur a loss of 500,000 yen in a year, you cannot deduct this from gains in subsequent years for tax purposes. This requires careful year-end planning to balance gains and losses intentionally.

Tax rate disparities compared to other financial products

The tax rate structure for cryptocurrency profits is less favorable compared to other investments. Stock dividends and capital gains are taxed at a flat 20.315% (15.315% income tax + 5% resident tax) under self-assessment, whereas cryptocurrency profits are subject to progressive comprehensive taxation, with rates from 5% up to 45% (up to about 55% including resident tax).

The source of the same amount of profit significantly affects the tax burden, so asset allocation decisions should consider this tax rate difference.

Questions and Answers from Investors

Here are common questions about cryptocurrency taxation and practical decision points.

Holding only does not trigger taxation?

Simply holding cryptocurrencies does not generate tax liability. Taxation occurs only when actions such as selling, exchanging, or using them for settlement (“profit realization”) happen.

Fluctuations in market value during holding are unrealized gains or losses and are not subject to tax. Strategic timing of sales and exchanges allows control over tax burdens.

Can losses from cryptocurrencies offset gains from stock investments?

Unfortunately, no. Losses from cryptocurrencies are limited to miscellaneous income and cannot be combined with gains from stocks or other transfer income.

Even with multiple investments, each income category’s gains and losses are managed separately, and tax calculations are performed within each category.

How to calculate gains/losses across multiple exchanges?

All transactions across multiple exchanges are aggregated for profit and loss calculation. You need to obtain transaction history data from each exchange and process them uniformly using the chosen method (moving average or total average).

Tax-wise, different exchanges are treated as a single cryptocurrency portfolio.

How are NFT transactions treated for tax purposes?

NFT (Non-Fungible Token) transactions are taxed similarly to cryptocurrencies. The profit is the difference between purchase and sale prices, classified as miscellaneous income.

This applies not only to digital art sales but also to sales of in-game items and metaverse assets.

For Efficient Tax Management

To properly manage taxes in cryptocurrency investment, the following points are essential:

• Profits from cryptocurrencies are taxed as “miscellaneous income” under comprehensive taxation.

• Specific taxable events include:

  • Converting cryptocurrencies to fiat currency
  • Using cryptocurrencies to purchase goods or services
  • Exchanging between different cryptocurrencies
  • Receiving rewards from mining or staking

• Filing becomes necessary when:

  • Total miscellaneous income exceeds 200,000 yen annually
  • You have multiple employment incomes
  • Employment income exceeds 20 million yen
  • You are a dependent with annual income over 480,000 yen

• Cryptocurrency-specific constraints:

  • Losses cannot be offset across different income types
  • Losses cannot be carried forward
  • Tax rates tend to be higher than other investments
  • Acquisition costs are calculated via moving average or total average methods

Accurate knowledge of cryptocurrency taxation forms the foundation for avoiding unexpected tax burdens and achieving efficient asset management. Keeping detailed transaction records daily and consulting tax professionals when in doubt will help establish proper filing practices.