Complete Understanding of Cryptocurrency Taxation System │ Filing Obligations and Calculation Rules for 2025

As the number of cryptocurrency (Bitcoin, Ethereum, etc.) holders increases, the question “What happens to taxes when I make a profit?” is rapidly gaining attention. In reality, the tax system for cryptocurrencies differs significantly from that of stock investments or FX trading. Continuing transactions without understanding these differences could lead to unexpectedly high tax burdens.

This article explains everything investors need to know about cryptocurrency taxation based on the latest 2025 tax reforms, from basic knowledge to practical filing points and common misconceptions.

Four Timing Points When Taxes Are Incurred in Cryptocurrency Trading

First, it’s important to understand “when are taxes applied?” A common misconception is “taxes are not incurred until I convert to yen,” but this is not correct. The taxable points for cryptocurrency are as follows:

Profit at the time of sale

The clearest case is when you sell cryptocurrencies for Japanese yen, dollars, or other fiat currencies. The difference between the purchase price and the sale price is taxed as profit.

For example, if you buy Bitcoin for 500,000 yen and sell it for 800,000 yen, the 300,000 yen profit is taxable. Even if the value has increased after purchase but before selling (unrealized gains), no tax is incurred until you sell. Therefore, the timing of the sale greatly impacts your tax burden.

Exchange between cryptocurrencies

Exchanging one cryptocurrency for another, such as Bitcoin to Ethereum, also triggers taxation. This is because it is regarded as “converted into yen once,” so the gain is recognized.

For example, if you bought Bitcoin for 400,000 yen and it appreciated to 600,000 yen, exchanging it for Ethereum at that point would realize a 200,000 yen profit, which is taxable. Since intra-exchange currency switches are included, active trading with frequent swaps between multiple cryptocurrencies requires careful attention.

Use for payments or purchases

Using cryptocurrencies to buy goods or services also incurs taxes. The difference between the acquisition cost and the fair market value at the time of purchase is considered profit, and taxes are owed even if you haven’t converted back to yen.

For example, if you acquired cryptocurrency worth 50,000 yen, which then appreciated to 100,000 yen, and you used it to buy something, a profit of 50,000 yen is subject to tax.

Mining and staking rewards

Cryptocurrencies earned through mining or staking are taxed at their fair market value at the time of acquisition as income. An important point is the “two-stage taxation” — when you sell the earned assets later, the profit from the sale is also taxed.

For example, if you mine 1 Ethereum (worth about 300,000 yen), the value minus expenses like electricity costs is first taxed as income. When you sell that Ethereum later, the capital gain is also taxed, creating a layered tax effect.

Position of Cryptocurrencies in Japan’s Tax System

Cryptocurrency tax treatment is clearly different from stock investments. Under Japanese law, Bitcoin and Ethereum are classified as “crypto-assets” under the Fund Settlement Law, and profits from these transactions are subject to comprehensive taxation.

Classified as “Miscellaneous Income”

Income from cryptocurrency transactions is categorized as “miscellaneous income,” which is combined with other income such as salary income to determine the overall income tax rate. As your total income increases, so does the tax rate.

This is a crucial point: in some cases, the combined tax rate can reach 15.315% (income tax) + 5% (inhabitant tax) + 2.1% (special reconstruction tax), with the possibility of higher progressive rates. In extreme cases, the maximum rate can be about 45% (including inhabitant tax), totaling approximately 55%.

Thus, significant profits from cryptocurrencies can lead to a much higher tax burden than stock investments.

Restrictions on Loss Offset with Other Income Types

Losses from cryptocurrencies can only be offset within “miscellaneous income.” For example, if you gain 300,000 yen profit from Bitcoin trading but incur a 400,000 yen loss on another crypto asset, the net loss within miscellaneous income is 100,000 yen, and you owe no tax that year.

However, losses cannot be offset against other income categories like stock or real estate income. This means large losses in crypto cannot reduce taxable income from other sources, which significantly impacts portfolio strategies involving multiple financial products.

Key Points for Filing Tax Returns

While not all investors must file tax returns when trading cryptocurrencies, there are often overlooked requirements.

Filing thresholds for employees

For salaried workers, if the total miscellaneous income including cryptocurrencies exceeds 20,000 yen annually, filing is mandatory. The “20,000 yen” refers to net profit (sale gains minus expenses), not total transaction amounts.

For example, if you have 1.5 million yen in gains but also incur 800,000 yen in losses, your net profit is 700,000 yen, and you must file.

Attention when having multiple income sources

If you have multiple sources of income besides salary, and their total exceeds 20,000 yen, you must file. For instance, earning 150,000 yen from crypto and 100,000 yen from affiliate marketing totals 250,000 yen, requiring a tax return.

Also, if you receive salary from multiple companies or your salary exceeds 20 million yen, you are required to file even if crypto gains are small.

Warning for dependents and student investors

Dependents should be especially cautious. If their annual income exceeds 480,000 yen (as of 2025), they may lose dependent status. Since crypto profits are included as income, if a dependent spouse or student earns profits from crypto, they could unexpectedly lose tax benefits, increasing overall household tax burden.

Those near the dependency threshold should plan their investments carefully throughout the year.

Two Methods for Calculating Profit

The way you calculate the acquisition cost of cryptocurrencies can affect your tax burden depending on the method chosen.

Moving Average Method

Calculates an average acquisition cost each time you buy, making it easier to track profit/loss in real-time. Suitable for frequent traders.

Total Average Method

Uses the average purchase price over the year, which is simpler to calculate. Best suited for those with fewer transactions annually.

Whichever method you choose, once decided, you must continue using it consistently. You also need to submit a “Cryptocurrency valuation method notification” to the tax office during your first tax return to finalize the method. Choosing a method aligned with your trading style and management capacity is crucial.

Major Restrictions in Cryptocurrency Taxation

Serious issue: Loss carryforward not allowed

Losses from cryptocurrencies cannot be carried forward to subsequent years. For example, a 500,000 yen loss this year cannot be deducted from future gains.

This contrasts with stock investments, where losses can be carried over for three years. Due to this rule, managing gains and losses within the year is very important. If losses are expected at year-end, it may be necessary to realize some gains to offset losses.

Same rule applies to NFT investments

NFT (Non-Fungible Token) transactions are taxed under the same rules. The profit or loss from buying and selling NFTs is treated as miscellaneous income, similar to cryptocurrencies.

Risks of Not Filing

Recently, the National Tax Agency has strengthened its data collection on crypto transactions and is conducting audits of exchanges. Failing to file can result in penalties such as the delinquent tax (15-20%) and additional surcharges. In severe cases, a hefty penalty called “additional tax” at 40% may be imposed.

Proper filing is a fundamental responsibility of investors and essential to avoid future trouble.

Common Questions and Misconceptions

Does just holding crypto incur taxes?

No, simply holding cryptocurrencies does not incur taxes. Taxes are only triggered when you sell, exchange, or use them for purchases, realizing gains. Unrealized gains during holding are not taxed, so timing of sales or exchanges should be carefully considered.

How to calculate when using multiple exchanges

Even if you trade across multiple exchanges, all gains and losses are combined for calculation. You need to obtain transaction histories from each exchange and apply the same calculation method (moving average or total average) to compute total gains/losses. For tax purposes, all exchanges are treated as a single portfolio.

Practical Tips for Efficient Tax Management

By acquiring solid knowledge about cryptocurrency taxation, you can avoid unexpected tax burdens and optimize your asset management.

Key management points:

• Keep detailed records of all transactions daily, accurately tracking gains and losses
• Regularly estimate annual profits to confirm filing obligations
• Plan transactions with dependents, considering the 48万円 income threshold
• At year-end, review profit/loss status to decide on profit realization or loss offset
• For complex cases or uncertainties, consult a tax professional

Accurate tax knowledge and continuous record-keeping are essential for safe and stress-free cryptocurrency investing. Proper filing allows you to focus on your investments without unnecessary worries.