Forex day trading - tax query

[Carnivor Gor]

A while back I started doing a little bit of day trading on the forex market and after some mixed success in the early days I am actually starting to earn some consistent profit. What I want to know is if I were to step my game up and start doing it with a meaningful amount of money, how would I go about paying tax on my earnings in Japan and what information would I need to provide to the tax man. I am from Australia and am a long-term resident of Japan. I would rather do everything properly from the tax perspective as taxes here are a lot easier on the bank balance than back home.

[NickW]

File under miscellaneous income 収入金額等 [雑・公的年金等㋑].

[Robert01]

Do not get emotionally involved in your day trading. You will win some and lose some. That is just how it works, and it happens to ALL traders. Keep your perspective and just ensure that you are always on the positive side in the overall scenario. Do not let yourself be disturbed by the happenings on any particular day.

[THEDON]

A while back I started doing a little bit of day trading on the forex market and after some mixed success in the early days I am actually starting to earn some consistent profit. What I want to know is if I were to step my game up and start doing it with a meaningful amount of money, how would I go about paying tax on my earnings in Japan and what information would I need to provide to the tax man. I am from Australia and am a long-term resident of Japan. I would rather do everything properly from the tax perspective as taxes here are a lot easier on the bank balance than back home.

Bearing in mind it is online and I work for a Swiss firm,

- We offer all the implications of dealing with a Swiss institution. Namely no capital gains tax and the secrecy and security that you would expect from a Swiss investment house.


Sadly in Japan you have to file the investment and returns within your tax return -- though it depends who you are dealing with, e.g. where is your broker?

[lifeaftereikaiwa]

Wow I am happy to see this thread; I have the exact same question.

My thinking is that I am far better off filing in Japan for 2 reasons -- lower taxes and using this income for visa extension.

I asked fxcm.com and they said if I funded my account from a Japanese bank, denominated in yen, and took profits back to the same account -- no problem. Despite being a US citizen, the IRS would never give me any ____.

I would like to know if there is anyone actually doing this though; it is the kind of thing I really want to set up right the first time.

Additionally as a Mac user I am hoping I could do the same with thinkorswim, since they seem to be the only ones supporting Mac.

Anyone else? What broker do you use? Where are you from, where do you live, and where do you file taxes?

[THEDON]

Wow I am happy to see this thread; I have the exact same question.

My thinking is that I am far better off filing in Japan for 2 reasons -- lower taxes and using this income for visa extension.

I asked fxcm.com and they said if I funded my account from a Japanese bank, denominated in yen, and took profits back to the same account -- no problem. Despite being a US citizen, the IRS would never give me any ____.

I would like to know if there is anyone actually doing this though; it is the kind of thing I really want to set up right the first time.

Additionally as a Mac user I am hoping I could do the same with thinkorswim, since they seem to be the only ones supporting Mac.

Anyone else? What broker do you use? Where are you from, where do you live, and where do you file taxes?

FXCM are the worlds largest broker but also a market maker....not advisable to use them.

I work for a broker so wont advertise here...

FX brokers view is that you are responsible for filing your own taxes....

[Majestic]

I would like to know if there is anyone actually doing this though; it is the kind of thing I really want to set up right the first time.

Yeah, I agree with The Don... if you want to set this up right the first time, you need to get better advice than what the guys at FXCM are telling you. In the first place, Japan has a higher tax rate for high income earners than the US (and many other places). Japan's income tax goes up to 40% for the national tax, in addition to 10% for the local tax (not to mention the 5% consumption tax). The US maxes out at 35%, plus at most a state income tax of maybe 9.5% at the highest rate.

In the second place, as a US citizen you are required to file a US income tax return regardless of how you shuffle your cash around. Your income could be exempt from taxation due to the "foreign-earned income exemption" but capital gains are not subject to this exemption (and neither are forex gains, if I'm not mistaken).

The good news (?) is that if you are a mid/low income earner, you might have a lower tax rate in Japan due to the various exclusions, but you'd have to run the numbers first. Here again though, if forex is your only income, and you can't take advantage of the foreign earned income exclusion, you will get a credit for the Japanese income tax you pay, but you may well end up having to pay some income tax in the US as well. Sorry I couldn't give you a lot of cheery news on this, but its a complicated thing... Might be worth talking with a professional tax person who understands Japanese as well as US income tax.

[THEDON]

Yeah, I agree with The Don... if you want to set this up right the first time, you need to get better advice than what the guys at FXCM are telling you. In the first place, Japan has a higher tax rate for high income earners than the US (and many other places). Japan's income tax goes up to 40% for the national tax, in addition to 10% for the local tax (not to mention the 5% consumption tax). The US maxes out at 35%, plus at most a state income tax of maybe 9.5% at the highest rate.

In the second place, as a US citizen you are required to file a US income tax return regardless of how you shuffle your cash around. Your income could be exempt from taxation due to the "foreign-earned income exemption" but capital gains are not subject to this exemption (and neither are forex gains, if I'm not mistaken).

The good news (?) is that if you are a mid/low income earner, you might have a lower tax rate in Japan due to the various exclusions, but you'd have to run the numbers first. Here again though, if forex is your only income, and you can't take advantage of the foreign earned income exclusion, you will get a credit for the Japanese income tax you pay, but you may well end up having to pay some income tax in the US as well. Sorry I couldn't give you a lot of cheery news on this, but its a complicated thing... Might be worth talking with a professional tax person who understands Japanese as well as US income tax.

Spot on...my firm is Swiss -- meaning no capital gains tax.


I've always told clients that it's their responsibility to fill in their tax form if they ask...no way for me to know what they are exempt from .

[lifeaftereikaiwa]

Thanks for the word about avoiding fxcm. Interesting when I asked thinkorswim if I could fund an account w/ Japanese bank yen they said "no."

I know I file in both the States and Japan, my question is how to make sure any forex income goes on the Japan forms.

The deductions in Japan for a personal business are great. I am realistic so I don't plan to make zillions in forex my first year trading. 1/2 my pathetic English teaching income would be a huge success as far as I'm concerned, hence why I believe it would be well worth my while to have those taxes filed in Japan for some time to come.

It is looking like a huge pain though so I'm starting to resign myself to the idea that I will need to trade, file, and pay in the States, despite being based in Japan.

Seems a little ridiculous though. As I understand it, forex is quite popular for independent traders in Japan. I doubt they are using exclusively Japanese brokers, yet I am confident they are filing taxes in Japan. Theoretically I should be able to do the same...

[mike-stock]

The one major flaw in online day trading community is that people tend to take hasty decisions due to which they might just fall prey to the market and have a lost deal. Hence, once you join a day trading community make sure that you do not make hasty decisions.

[kajagoogoo1]

Hey,

While we are talking about trading strategies I thought I would add my 2 cents worth.

I have benefited from a couple of people and I thought I will share it. Two stock pros provide stock and ETF recommendations in real-time via email so you can immediately act on their recommendations. I have never lost money with them.

You should check out this excellent source about market timing and stock investing, it's quite useful: http://www.VirtueofSelfishInvesting.com

-KGG

[Guru]

Why do you file your earning from Forex to the tax authority? The tax authority does not know you make or lose money from your trades. If you can get away with it, why not? It's like speeding on the public roads.

[fxgai]

Why do you file your earning from Forex to the tax authority? The tax authority does not know you make or lose money from your trades. If you can get away with it, why not? It's like speeding on the public roads.

Dunno if the Guru was joking or not but Japanese brokers now report clients' P/L to the NTA at the end of the year, so it'd be risky business to not file a tax return if one's trading profits exceed the 200,000 threshold. (From this year, 2012, profits from OTC forex trading are now to be taxed at a flat rate of 20%, instead of the progressive rates depending on total income.)

I wonder if the NTA can get info about trades with offshore brokers though. The Japanese authorities will possibly know about it when you fund an account (due to the funds transfer), but I doubt whether they can grasp any taxable profits you make there, unless you bring the profits back to Japan. (?)

[Super Grover]

Dunno if the Guru was joking or not but Japanese brokers now report clients' P/L to the NTA at the end of the year, so it'd be risky business to not file a tax return if one's trading profits exceed the 200,000 threshold. (From this year, 2012, profits from OTC forex trading are now to be taxed at a flat rate of 20%, instead of the progressive rates depending on total income.)

I wonder if the NTA can get info about trades with offshore brokers though. The Japanese authorities will possibly know about it when you fund an account (due to the funds transfer), but I doubt whether they can grasp any taxable profits you make there, unless you bring the profits back to Japan. (?)

Probably it is a grey area for now. But how can one move $50,000 (example only) except via electronic means? The only thing you could do would be to wait until you returned to your home country, but then wouldn't you be liable for taxes there, too?
When I asked a bank, they wrote that they do not automatically exchange info with tax authorities (any).
If the NTA decides to investigate you for some reasons, then they can demand your info from offshore bank accoutns. Most will cooperate. I hear Luxembourg and Switzerland are the least forthcoming. The NTA needs to have a court order to get your records, BUT they'd demand that you provide the data and if you were to refuse (tell them to get a court order), you'd be at risk of "not cooperating," and therefore liable for more serious punishment(s). Though if it went to court, you'd be okay, I think.

[fxgai]

I might be on a different wave length but..

Probably it is a grey area for now. But how can one move $50,000 (example only) except via electronic means?

You mean to get the money offshore?

Actually it struck me that you could move a chunk of money without transferring it (at least all of it, I mean) through the banking systems. Imagine you have a margin forex account in Japan, and another margin forex account offshore, and you open offsetting positions on these accounts simultaneously... One goes up, the other goes down... using 25:1 leverage on both...

If it's your Japanese forex account that goes down in net value, to the NTA it'd look like you've actually suffered a loss (which might be a convenient thing depending on your intentions.)

There are issues with getting initial funds into the offshore account etc, but I'm thinking they're probably not insurmountable.

The only thing you could do would be to wait until you returned to your home country, but then wouldn't you be liable for taxes there, too?

In this respect you are talking about accessing the funds, correct? I seem to recall people using bank cards issued by offshore banks for this purpose. Again, not speaking from experience though.

I just recently got interested in this after reading the "日本脱出" book that came out recently, which basically encouraged readers to avoid taxes, if not attempt to evade them I'm sure that author will get a nice audit sometime!

[Super Grover]

I might be on a different wave length but..



You mean to get the money offshore?

Actually it struck me that you could move a chunk of money without transferring it (at least all of it, I mean) through the banking systems. Imagine you have a margin forex account in Japan, and another margin forex account offshore, and you open offsetting positions on these accounts simultaneously... One goes up, the other goes down... using 25:1 leverage on both...

If it's your Japanese forex account that goes down in net value, to the NTA it'd look like you've actually suffered a loss (which might be a convenient thing depending on your intentions.)

There are issues with getting initial funds into the offshore account etc, but I'm thinking they're probably not insurmountable.



In this respect you are talking about accessing the funds, correct? I seem to recall people using bank cards issued by offshore banks for this purpose. Again, not speaking from experience though.

I just recently got interested in this after reading the "日本脱出" book that came out recently, which basically encouraged readers to avoid taxes, if not attempt to evade them I'm sure that author will get a nice audit sometime!

"Issues" indeed! How, how, how are you going to set up an account? Will you physically fly to Switzerland (or another currently friendly jurisdiction) and then offer them a lump of cash? How will you transport the money? You would risk being stopped. If anyone knows, well DO tell.
I suspect that these days one would need to devise a very ingenious plan because what with the gross fiscal excesses of governments, now the tax authorities are under the gun to extract every dime from decent people. Anything that a reasonably intelligent person could conceive of, I would bet that they have anticipated it.

If you use this card regularly and frequently, you'd be found out. I have one. I will not dare to use it while in either of the countries where tax applies to me. Now travel outside, THAT is another matter. But even then, you could only move around $10,000.

Could you give me a link to the book, please. Maybe I would like to have a look and buy it.

[fxgai]

"Issues" indeed! How, how, how are you going to set up an account? Will you physically fly to Switzerland (or another currently friendly jurisdiction) and then offer them a lump of cash? How will you transport the money? You would risk being stopped. If anyone knows, well DO tell.

From what I read it's possible to open an account without actually physically visiting the offshore bank in certain cases. As you note that shifting of the funds seems to be the tricky part.

This is where I'm wondering if that 25:1 leverage might come in handy... But if my head is right this morning that still means you need to pick a 4% move in the forex rates to just double the amount transferred.

Could you give me a link to the book, please. Maybe I would like to have a look and buy it.

Here you are:

http://www.amazon.co.jp/%E6%97%A5%E6.../dp/4860635264

You seem quite familiar with these offshore issues, so you may find you already know a good deal of what he writes about.

Obviously the book is written with your average Japanese salaryman in mind, but there are some interesting things there. From memory the author doesn't really give any clear cut approach to moving funds to an offshore account - just ideas. I'll have to read that part again to check. But I think he also offered the view that when Japan's finances go splat, he's skeptical that the tax authorities would go chasing around after every single offshore account. From what you have been saying though I imagine you might not be particularly impressed...

[Super Grover]

From what I read it's possible to open an account without actually physically visiting the offshore bank in certain cases. As you note that shifting of the funds seems to be the tricky part.

This is where I'm wondering if that 25:1 leverage might come in handy... But if my head is right this morning that still means you need to pick a 4% move in the forex rates to just double the amount transferred.



Here you are:

http://www.amazon.co.jp/%E6%97%A5%E6.../dp/4860635264

You seem quite familiar with these offshore issues, so you may find you already know a good deal of what he writes about.

Obviously the book is written with your average Japanese salaryman in mind, but there are some interesting things there. From memory the author doesn't really give any clear cut approach to moving funds to an offshore account - just ideas. I'll have to read that part again to check. But I think he also offered the view that when Japan's finances go splat, he's skeptical that the tax authorities would go chasing around after every single offshore account. From what you have been saying though I imagine you might not be particularly impressed...

Thank you for the link. I was lazy.
-- You can, of course, open an offshore account from here. That part is relatively easy if you are not American or from the UK. You need properly authorized documentation only. The "problem" is funding the account. Short of physically transporting money to Switzerland, Luxembourg, or one of the Channel Islands, I do not see how one could avoid tax authorities here.
-- Since even professional traders get burned on leverage, that is not something I'd be willing to try unless it was a very inconsequential amount. But to each his/her own.
-- I do not know all that much about offshore. I am only drawing on my own limited experience.
-- Any tips the book may have are welcome!

[fxgai]

Not from UK, nor American... check, check...

For funding offshore, I've only ever used Japanese forex accounts to this point, but I see that offshore forex accounts offer credit card as a means of account funding. And apparently to withdraw your initial seed money in this case, a credit card transaction cancellation is used to do this.

As for any money in the offshore forex account that you got there by trading (or in this case by using offseting forex positions to swing money there from a Japanese account), that money can apparently be withdrawn to any bank account you like by wire. A Swiss one should be as good as any!

More convoluted would be to fund the offshore forex account from an offshore bank as well, but I guess this might be pointless unless one is sure the authorities would go into activity on it. I remember the author of the book at least thinks offshore banks will protect your privacy if they can, so it might be worth the hassle.

As for leverage, normally I avoid it too, but in this case the point of using it would be to speed up the process of swinging money between accounts. So long as one has offsetting trades entered correctly I think it should work. When I have time I will try it out on a couple of demo accounts and see. I tend to think the tricky bit will be to get the money shifting in the desired direction, but if at once you don't succeed...

[fxgai]

Yikes, I read the part of the book again about transfering funds, and yes indeed this guy is basically leaving the reader with the idea that hand carrying the money offshore is the best option. He states clearly that it's illegal as well He also says that there is talk that the X-ray detectors can show it up, but as it stands currently they don't stop this. Of course he notes the risks of carrying loads of cash around on one's person also.

So how much cash can be stashed away in one's hand luggage eh!

[Super Grover]

Yikes, I read the part of the book again about transfering funds, and yes indeed this guy is basically leaving the reader with the idea that hand carrying the money offshore is the best option. He states clearly that it's illegal as well He also says that there is talk that the X-ray detectors can show it up, but as it stands currently they don't stop this. Of course he notes the risks of carrying loads of cash around on one's person also.

So how much cash can be stashed away in one's hand luggage eh!

I have never carried money to the limit (too concerned about theft). I know a guy over here who did take back over $10,000 in cash. Th x-ray machine did catch it and he was pulled aside for making a false declaration. Now, he says, any time he goes to or from the US he is pulled to the side and his luggage is searched. Oddly enough, it has worked to his benefit because in the States he can go through faster!

If you move money from one offshore account to another (both yours), the names must be identical and proof is required. I have done it quite recently.

[fxgai]

I have never carried money to the limit (too concerned about theft). I know a guy over here who did take back over $10,000 in cash. Th x-ray machine did catch it and he was pulled aside for making a false declaration. Now, he says, any time he goes to or from the US he is pulled to the side and his luggage is searched. Oddly enough, it has worked to his benefit because in the States he can go through faster!

Presumably there are differences between countries as to how rigourously they check this.

For the Japanese limitation of cash in excess of 1 million yen, I don't know how the customs/immigration officers would ever to know about it unless the traveler declared it. It's the security folks running the x-ray machines after customs/immigration, not them.
Depending on the destination, from what you say it may be a different story, but at least if the local authorities have no information passively gifted to them that's a start.

Interestingly, I see also that Japan requires one to declare "gold bullion" in excess of 1kg. If my sums are correct 1kg of gold these days is worth more than 5,300,000 yen. (Perhaps when they set the rule 1kg was worth closer to 1 million yen...) In order words, you have to declare 1 million yen in cash, but you are welcome to carry 5 million yen's worth gold bullion out of the country without reporting it. (I've never bought physical gold - are these purchases reported I wonder?)

A cursory glance at the rules for Japan doesn't reveal any requirements about gold *coins*. (Not as convenient to carry as a 1kg bar, granted.) Nor for lumps of palladium, which apparently fetches a slightly higher price than gold as of today, though that may be harder to flog off at the destination than gold(?).