The content translated to English is: It's not too late! Some things you should know about FX and taxes...

Starting FX and paying taxes means you are winning! You are in the top tier of winners.

However, just because you are losing does not mean you don’t have to file a tax return. Except for a few geniuses, everyone starts from a loss when they begin. If you don’t know the following things at that time, you may incur losses. I myself have felt frustrated from things I didn’t know.

◎ FX and Taxes

1) Carrying forward losses

Even if your annual FX income and expenditure is negative, you can carry forward the loss to the next year by filing a tax return.

For example, if Year 1 is -1,000,000 yen and Year 2 is +500,000 yen, then...

If you carry forward the losses on your tax return, Year 1 is obviously a loss, so no taxes are due. Also, Year 2 would be -1,000,000 plus +500,000, which equals -500,000, so no taxes are due in Year 2 as well. Moreover, losses can be carried forward for three years, so you can carry forward -500,000 to the following year.

If you do not file a tax return, losses cannot be carried forward, so Year 1 would still be -1,000,000 and no taxes would be due as described above. However, in Year 2, since the loss is not carried forward, you would have taxes on the +500,000. Additionally, in Year 3, taxes would apply to all profits.

This difference changes the amount of tax you pay. Therefore, even if you are losing, you should file the tax return properly.

2) Deducting expenses

When trading FX, you can deduct expenses you incurred. For example, costs for a PC or tablet, internet connection and provider fees, antivirus software, information fees such as newspapers or cable TV/BS/CS, system costs like EAs and trading tools, costs for salons or schools, books and magazines, and anything related to FX can be deducted as expenses.

Of course, taxes are charged on what remains after deducting expenses from profits, so it’s best to deduct as much as possible to reduce taxes. Receipts are required for expense deductions. Be sure to keep them safely and submit them when filing your tax return.

※ Some information says that if you trade at home you can also deduct electricity costs, etc., but please confirm with the tax office or a tax advisor for accuracy. Still, it may be worth trying even if it’s a long shot.

3) Separate taxation and miscellaneous income

For tax purposes, FX income is taxed separately (separate taxation), and the tax rate differs from ordinary income. The tax rate on FX income is at most about 20% in Japan.

For overseas FX, it does not fall under separate taxation. Therefore, profits from overseas FX become miscellaneous income (miscellaneous revenue) once brought back domestically. The tax rate for miscellaneous income is at most about 55%.

The differences between domestic FX and overseas FX are not only the tax rates, but also the net profit left after tax can differ significantly between about 20% and about 55%. Personally, considering the higher risk, the lack of trading benefits, and the less favorable tax rate, I wouldn’t recommend overseas FX. In practice, I mainly trade domestically.

◎ Video