Cryptocurrency Transfers and Tax Procedures │ The Complete Overview of Profit Calculation You Need to Know to Avoid Risks

When engaging in cryptocurrency trading, one of the most commonly overlooked aspects is the tax treatment of the entire series of transaction activities, including “transfers.” Many misconceptions exist, such as “transfers between wallets are not taxable” or “as long as you haven’t sold, you’re safe,” but in reality, these can often lead to unexpected tax burdens. This article provides a step-by-step explanation based on the 2025 tax system, covering the overall picture of taxes on cryptocurrency investments, specific profit calculations, and filing obligations.

Basics of Cryptocurrency Investment and Taxation

Positioning under Japanese Tax Law

Cryptocurrencies such as Bitcoin and Ethereum are defined as virtual assets under Japan’s “Payment Services Act,” and unique tax regulations apply to gains from these transactions. Unlike stock investments, profits from cryptocurrencies are classified as “miscellaneous income,” which is combined with employment income and taxed collectively. This is a crucial point for investors to understand. As income increases, the tax rate also rises progressively, potentially reaching a maximum of 45% (about 55% including local inhabitant taxes). Compared to a flat 20.315% tax rate on stock gains, this can result in significant differences.

Strengthening of National Tax Agency Oversight and Filing Obligations

Recently, the National Tax Agency (NTA) has significantly increased its monitoring of cryptocurrency transactions and actively requests information from exchanges. Failure to file a tax return can result in penalties such as a 15-20% surcharge for non-filing or late payment, and if deemed malicious, a heavy penalty of 40% (additional tax). Proper filing is not just a duty but an essential requirement to continue investment activities with peace of mind.

When and How Taxation Occurs with Examples

Taxable events in cryptocurrency are not limited to simple “selling.” Many activities, including transfers, are subject to taxation.

Realization of Gains through Selling

The most basic case is when you sell cryptocurrency for fiat currency (such as Japanese Yen or USD). The difference between the purchase price and the sale price is directly taxable. For example, if you bought Bitcoin for 500,000 yen and sold it for 800,000 yen, a profit of 300,000 yen is subject to tax.

Taxation on Transactions Involving Transfers

Transfers are not just asset movements; they have significant tax implications. Sending coins to another exchange or moving between wallets can trigger taxation if the valuation changes during the process. Especially for investors using multiple exchanges, it is important to record the market value at the time of transfer accurately.

Profits from Purchasing Goods and Services

Using cryptocurrency directly to buy goods or services also results in taxable events. The difference between the acquisition cost and the market value at the time of purchase is taxable. For example, if you acquired coins worth 50,000 yen and used them to buy something when their value increased to 100,000 yen, a profit of 50,000 yen is realized and taxed.

Exchange Between Different Cryptocurrencies

Exchanging Bitcoin for Ethereum, for example, is also taxable. Since such exchanges are considered as if they are converted into yen at the time, the gain is calculated based on the difference. If you bought Bitcoin for 400,000 yen and exchanged it when its value rose to 600,000 yen, a profit of 200,000 yen is taxable.

Mining and Staking Rewards

Coins earned through mining or staking are also recognized as income at their market value at the time of acquisition. For instance, if you mine 1 Ethereum (worth about 300,000 yen), the amount after deducting expenses like electricity costs is taxable. Additionally, if you sell these rewards later, the profit or loss realized at that time is also subject to taxation in a two-step process.

Profit Calculation Methods and Practical Filing

Choice of Acquisition Cost Calculation Method

When calculating profits from cryptocurrencies, you need to choose between two methods: “Moving Average Method” and “Total Average Method.”

Moving Average Method updates the average acquisition cost each time you purchase. It allows real-time tracking of profit and loss and is suitable for frequent traders. Total Average Method divides the total purchase amount over the year by the total quantity purchased, offering a simpler calculation.

Regardless of the method chosen, you must submit a “Notification of Cryptocurrency Asset Valuation Method” to the tax office during your initial tax return to officially decide on the method. Afterward, you are required to continue using the same method consistently. Carefully selecting based on your trading style and management system is crucial.

Criteria for Filing a Tax Return

For employed individuals, if the total miscellaneous income including cryptocurrencies exceeds 200,000 yen annually, a tax return is required. The key point is that this is based on “net profit” (sale gains minus expenses), not the total transaction amount.

If you have multiple sources of income besides salary, and their combined net profit exceeds 200,000 yen, you must file. For example, if you earn 150,000 yen profit from cryptocurrencies and 100,000 yen from affiliate marketing, the total is 250,000 yen, requiring a return.

Important Turning Points for Dependents and Income Tax

For dependents, if annual income exceeds 480,000 yen (as of 2025), they may lose their dependent status. Cryptocurrency profits are included in this income, so if a spouse or student gains profits from trading, they may unexpectedly fall outside the dependent category, increasing the overall family tax burden.

In cases with multiple salary incomes or if annual salary exceeds 20 million yen, even small profits from cryptocurrencies may necessitate filing. Be mindful of these thresholds.

Specific Tax Constraints Unique to Cryptocurrencies

Practical Impact of Loss Offset Restrictions

Cryptocurrency losses can only be offset within “miscellaneous income.” For example, a 300,000 yen profit in Bitcoin and a 400,000 yen loss in another coin offset each other, resulting in a net loss of 100,000 yen, and no tax is owed.

However, offsetting losses with other income categories like stocks or real estate is not permitted. This means large losses in cryptocurrencies cannot be used to reduce taxable income from other sources, which is a significant limitation when building an investment portfolio.

Structural Issue: No Loss Carryforward

Cryptocurrency losses cannot be carried forward to subsequent years. Unlike stock investments, where losses can be offset for up to three years, a 50,000 yen loss this year cannot be deducted from future gains. This makes year-round profit and loss management critical. If large losses are expected at year-end, realizing some gains earlier to offset losses can minimize tax burdens.

Actual Tax Burden Differences Compared to Other Financial Products

The tax rate on cryptocurrency gains can be significantly higher than on other financial products. Stock dividends and capital gains are taxed at a flat 20.315% (15.315% income tax + 5% local inhabitant tax), whereas cryptocurrency gains are taxed as comprehensive income, with rates ranging from 5% to 45% (up to about 55% including local taxes).

For high-income earners, this difference can greatly influence investment decisions. When selecting investments or asset allocation, considering these tax differences is essential.

Handling Transfers and Taxation When Using Multiple Exchanges

When using multiple exchanges, it is standard to aggregate all gains and losses across platforms. Obtain transaction histories from each exchange and process them using the same calculation method (either moving average or total average). Transfers between exchanges are also included as part of the overall portfolio for tax purposes.

Accurate record-keeping of transfers is especially important. Record the quantity of coins sent and received, their market value at the time, and transaction fees to facilitate profit calculations and respond smoothly to tax audits.

Common Questions and Practical Answers

Does merely holding cryptocurrency trigger taxation?

No, simply holding cryptocurrency does not trigger taxation. Taxation occurs only when profits are realized through activities like selling, exchanging, purchasing goods/services, or transferring. Unrealized gains during holding are not taxed, so timing of sales or exchanges is worth careful consideration.

Is it completely impossible to offset losses and gains?

Not entirely, but with restrictions. Losses and gains between different cryptocurrencies can be offset within “miscellaneous income.” However, offsetting with gains from stocks or FX is not allowed. Managing each investment separately is necessary.

How are NFT transactions taxed?

NFT (Non-Fungible Token) transactions are also taxable. The profit from buying and selling NFTs is treated as miscellaneous income, similar to cryptocurrencies. Understanding that NFT trading falls under the same tax framework as virtual assets is important.

Practical Tax Management Tips

Effective tax management in cryptocurrency investment involves focusing on:

• Complete Record-Keeping: Document all purchase, sale, and transfer dates, quantities, and prices.
• Consolidating Gains and Losses Across Multiple Exchanges: Combine data from all platforms used.
• Consistent Calculation Method: Continue using the chosen method (moving average or total average).
• Year-End Profit Planning: If significant gains are expected, consider realizing some profits early to offset losses.
• Dependents and Income Thresholds: Keep income below 480,000 yen if maintaining dependent status.

By acquiring knowledge about cryptocurrency taxation, you can avoid unexpected tax burdens and optimize your asset management. If record-keeping feels challenging, consulting a tax professional is a good option. Accurate filing creates a secure environment for ongoing cryptocurrency investment, forming the foundation for long-term success.