Cryptocurrency Tax Rates: List of Systems in Japan and the United States and Practical Differences

The methods of taxing cryptocurrencies vary greatly depending on the country. Taking Japan and the United States as examples, there are fundamental differences in approaches from the way tax rates are set to the criteria for determining taxable events. This article compares the structure of cryptocurrency tax rates in both countries and outlines points investors should pay attention to.

The Fundamental Differences in Tax Classification Decide Everything

Japan’s National Tax Agency classifies cryptocurrencies as “miscellaneous income,” whereas the Internal Revenue Service (IRS) in the United States positions them as “assets.” This classification difference directly affects subsequent tax rate application and the determination of taxable events.

In Japan, cryptocurrency income is treated as miscellaneous income, subject to progressive tax rates. In contrast, in the U.S., they are treated as assets, so capital gains tax mechanisms apply. Even profits from the same cryptocurrency can lead to significantly different tax burdens depending on how they are categorized.

Specific Numerical Comparison of Cryptocurrency Tax Rates

Japan’s Tax Rate Structure

In Japan, cryptocurrency income is taxed with progressive income tax rates ranging from 5% to 45%. Additionally, a 10% resident tax is added, potentially bringing the total tax rate up to 55%. Higher-income investors bear a heavier tax burden.

Unrealized gains held by corporations, which were previously taxed at 30% corporate tax, are expected to be abolished following the 2024 reform.

Tax filing obligations arise if cryptocurrency income exceeds 200,000 yen (about $1,600). This includes not only trading profits but also earnings from mining, staking, airdrops, and all other forms of income.

U.S. Tax Rate Structure

In the U.S., tax rates depend on the holding period. Short-term capital gains (held less than a year) are taxed at federal income tax rates from 10% to 37%, while long-term capital gains (held over a year) benefit from preferential rates ranging from 0% to 20%.

An interesting point is that the U.S. currently does not tax unrealized gains on corporate cryptocurrencies. However, the Biden administration is considering applying the “wash sale rule” to cryptocurrencies, with potential implementation in 2025.

Summary of Taxable Transactions and Non-Taxable Activities

Activities Taxed in Japan

In Japan, a broad range of transactions are taxable, including exchanges between cryptocurrencies and fiat currencies, exchanges between different cryptocurrencies, and using cryptocurrencies to purchase goods or services. Additionally, gifts of cryptocurrencies, mining, and staking rewards are also reportable. Tax calculations are based on the Japanese yen exchange rate at the time of the transaction.

Activities Taxed in the U.S.

In the U.S., capital gains tax applies when cryptocurrencies are sold, exchanged, or used, with gains calculated from the increase in value since purchase. Mining, staking, and airdrop income are generally treated as ordinary income. However, gifts within the annual gift tax exemption are not immediately taxed.

Activities Non-Taxable in Both Countries

Simple holding and transfers between wallets are not taxable in either Japan or the U.S. In Japan, donating purchased cryptocurrencies to recognized non-profit organizations is also non-taxable. Similarly, in the U.S., holding, transferring, and gifts below the exemption limit are non-taxable.

Future Trends in Tax Reforms

Both countries are reviewing their cryptocurrency tax systems. Japan is reportedly considering the abolition of corporate tax on unrealized gains and possibly introducing a uniform tax rate for individual investors.

In the U.S., regulatory tightening is prominent. The introduction of the wash sale rule could restrict tax-saving strategies that utilize losses.

Regulatory authorities in both countries are expected to continue adjusting their systems to balance the growth of the digital asset market with tax revenue collection.