First year with IBKR - dividends & taxes

[akiaji]

Thanks to everybody's help and advice about a year ago, I got running with Interactive Brokers for the first time in 2022. Wasn't great timing with everything that has happened in the world, but I am in it for the long-run, so not worried.

In the past, I have always done by Japan tax return by myself without any issues. For 2022, though, IBKR adds a few new things to the mix that I am not sure I will be able to handle myself. Before I talk to a local tax accountant, I wonder if anybody here as experience.
a) I exchanged JPY to USD to buy ETFs on a few occasions. I know I need to keep track of these rates for the future when I sell & exchange back to JPY to check for FX gain/loss, but do I need to do anything while just holding the ETFs?
b) I participated in their Stock Yield Enhancement Program (for what ended up a super small amount of interest paid). I assume this is income I need to take into consideration.
c) The slightly larger one is dividends. I have set to automatically reinvest, but from what I see, dividends from ETFs (分配金）are taxable whether they are cashed out or reinvested.

I am still waiting for the tax statement which hopefully clarifies things (i.e. whether the dividends were paid out before/after taxation) to be putting in the Japan tax return, but I wonder if anybody has general advice or experience on these kinds of items.

Since the IBKR statements will be in base currency USD, I am curious how the Japan tax agency likes to have these converted to JPY for the tax return. Is there an official FX rate that the tax agency publishes. Can I use something like Oanda with the 31st December FX rate, etc.?

Thank you in advance! Apologies for all the questions, and hopefully this helps others as well.

[Tkydon]

If the total of any income, other than your employment income for which Income Taxes have been withheld, is less than Y200,000, then you need do nothing.

If you are in regular employment (added), and the total of any income, other than your employment income for which Income Taxes have been withheld, is greater than Y200,000, then you need to declare it in your Kakutei Shinkoku.

Interest Income is declared as Aggregate Income, at your Marginal Tax Rate (National Marginal Tax Rate, 0.21% of National Marginal Tax Rate as Reconstruction/Defence Tax, and 10% Residents' Taxes).

Capital Gains on Equities is declared as Separate Income, at the Capital Gains Tax Rate of 20.315% (15% National, 0.315% Reconstruction/Defence, and 5% residents' Taxes)

With Dividend Income, you have the choice whether you want the Dividends to be taxed as Separate Method Dividend Income at the Dividend ax Rate of 20.315% (15% National, 0.315% Reconstruction/Defence, and 5% Residents' Taxes), or Aggregate Method at your Marginal Tax Rate (National Marginal Tax Rate, 0.21% of National Marginal Tax Rate as Reconstruction/Defence Tax, and 10% Residents' Taxes).
If you have made the investments in a Tokutei Account with Withholding - Gensen Choshu - then they will handle the tax for you.
The calculations are a little complex, but Japanese Dividends on Japanese Stocks are entitled to a Dividend Tax Credit. Overseas Dividends are not.
If you have mostly Japanese Dividend Income AND your Total Taxable Income is less than about Y6.6M, then it might be better to select the Aggregate Taxation Method.
If you have mostly Overseas Dividend Income AND your Total Taxable Income is less than about Y3.3M, then it might be better to select the Aggregate Taxation Method.
Otherwise, it would be better to select the Separate Taxation Method.

a) I exchanged JPY to USD to buy ETFs on a few occasions. I know I need to keep track of these rates for the future when I sell & exchange back to JPY to check for FX gain/loss, but do I need to do anything while just holding the ETFs?

A) You need to keep track of the Purchase Price in Yen, and future taxes will be based on the Average Price paid across all purchases of the same instrument when you sell.

b) I participated in their Stock Yield Enhancement Program (for what ended up a super small amount of interest paid). I assume this is income I need to take into consideration.

B) Yes, you can take interest paid as a credit against the gain in the future. Interest received will be taxable as Aggregate Income.

c) The slightly larger one is dividends. I have set to automatically reinvest, but from what I see, dividends from ETFs (分配金）are taxable whether they are cashed out or reinvested.

C) Yes, see above. As the ETF Dividend is distributed to you before being reinvested, it is taxable.
On the other hand, if there was a similar Mutual Fund and the Dividends were reinvested inside the Mutual Fund without being distributed to you, they would not be taxable.

Since the IBKR statements will be in base currency USD, I am curious how the Japan tax agency likes to have these converted to JPY for the tax return. Is there an official FX rate that the tax agency publishes. Can I use something like Oanda with the 31st December FX rate, etc.?

Yes, the Japanese Tax Agency does all of their calculations in Yen Values so you need to keep track of Exchange Rates on transaction dates.

You can use the rates posted here:
http://www.murc-kawasesouba.jp/fx/past_3month.php
See the bottom for downloads by Year since 1990...

[adamu]

Don't know the answers to your questions but

b) I participated in their Stock Yield Enhancement Program (for what ended up a super small amount of interest paid).

Be careful about this. You could be exposing yourself to additional risk. For example, less or no right to "your" investments if the market moves quickly or IB goes bankrupt. I don't know the details, but they won't give you something for nothing, so there must be a cost to this scheme. My guess is it's not worth the money, especially as it changes the risk profile of your investments, which you need to take into consideration for your asset allocation.

Same goes for people doing 貸株 in Japan.

[TokyoBoglehead]

If the total of any income, other than your employment income for which Income Taxes have been withheld, is less than Y200,000, then you need do nothing.

How can you state this without knowing his employment status?

[captainspoke]

Some random comments...

First, I have everything in my foreign account set as "Reinvest Dividends? No." This makes it easier to figure out the aggregate cost basis of a holding--you may have successive/ongoing purchases to account for, but at least not a lot of quarterly niggles along the way. (Japan uses an aggregate method, so if you buy something for $100, later more of it for $200, your basis for that holding, when selling any part of it, is then $150 (of course transliterated in to yen on the relevant dates, etc).

Dividends and any interest (eg, a MMF) are relatively easy and straightforward to calculate and report. I use a simple spreadsheet (google sheet) with all of my identifying personal info in the header (tax year, tax number, my number, name/address/phone/email, pagination if needed, also a sheet title, saying 'hey, this is my dividend report').

Each line/row is for a dividend paid, columns are for (item number), date, ticker symbol, $ amount, TTM rate for that date (link above in TK's post), the resulting yen amount, total of that yen column at the bottom.

A sheet for interest is almost identical. In my cases it is only 12 items/rows (one interest payment per month--I have many more for dividends), but the columns/headings are the same. Screenshot attached (minus tickers) for a few rows, blank date means same as the preceding date. (Foreign tax is there since very occasionally I've had some ADR that has a little foreign tax withheld (it's usually minor), and if you have this, you can list it and it get separated out--you get credit for that.)

I've used this format for years, and early on, on a couple occasions, got direct input on it from a person or two in the international section of my local tax office. Also, this format has survived an audit/調査 and then a later recheck--I have confidence in it. Two decimal places is what I use, anything past that gets rounded up or down as would normally happen.

((Tho, a funny story: Even tho this is a spreadsheet, I once had a fellow at filing time literally recheck the numbers--he confirmed the $ > ¥ conversions (tho not the rates that I had listed), also the total at the bottom, adding up something like 50+ rows. I was mildly surprised as I realized what he was doing, but didn't complain--it's his job, I suppose.))

*
Some things to do right now, I'll try to do a similar post on trades later, for any gains (losses). It's somewhat similar, but there are a few more columns in that one.

Also, I do not wait for the year-end statement. Altho I do kind of like playing with numbers, doing the full year at once is a chore (yuk!). My preference is to update the sheets several times thru the year, eg, April, July, and November. Then the last step (what I need to do now myself) is the final 6-8 weeks. Not sure about IB, but in your account history you can probably filter to show (respectively) interest payments, then dividends, and then trades.

[gaijin86]

I'm no expert on IB or tax, but... for the past several years, I have used the IB data for reporting, not my own spread sheets.

IB provide an official "tax statement" but I assume it is for Americans, so may or may not be useful. Anyway it comes very late (late Feb or March?).
What I do is I generate my own report: after login to IB, click top menu Reports, then click Statements, choose Activities, Annual (2022), then you have all the data you need.

I dont have IB opened just now, so the following it approximate.

After generating your annual statement of activities, you have to show the sections in the statement that are relevant for tax reporting, i.e., Account name, Realized and Unrealized gains (you are only interested in the total of Realized gains/losses), Dividends (again only the total is relevant -- I have a huge list of about 300 payments in a year), Tax deducted at source (US tax) (total is relevant -- you can reduce your taxible amount with this, although for individuals it may be delayed 1 year -- Im not sure), and Interest.

You can switch languages to Japanese anytime at the home page after logging into IB (top right side, user image > Settings) and you can also change Base Currency to yen (although that seems to take a couple of days - I think it is not instant.) This avoids hassle about currencies. (After finishing your taxes you can switch back to English and USD.)

With Japanese language and Yen as base currency, you can again generate the report (showing the items I mentioned above). Print the report (to a PDF file, rather than paper if you prefer, for easy storage).
Now you can see total Realized losses/gains in both USD and Yen, same for Dividends, Interest, US tax deductions. Use these totals in Yen in your tax declaration.
BTW doing your tax filing yourself is complicated; in fact even the tax office guys stratch their head and make hissing sounds a lot when doing IB
I did it etax online filing myself last year - BUT I had to make many trips to tax office to ask questions. This year I might have a few questions but I'm hoping to have my laptop *online* connected to my phone (hotspot) so I can show they guy what I'm clicking and what I'm inputting in realtime. (Last year, he would tell me what to do, then I'd go home and do it and the next screen would have another issue... duh... back to the tax office again...)
HTH









Realized

[akiaji]

Thank you everybody for the detailed responses. It is hugely appreciated. Although the amounts are still small (for now, hopefully) after my first year, I'm a bit nervous going in for my first round of reporting. Hoping to get it right the first few times so when the figures are more complicated, I have it figured out.

[akiaji]

Okay, I think I have made some good progress on calculating the tax-related items for IBKR. I will definitely keep a list going monthly as that will be much easier to do along the way rather than once at the end of the year. A couple questions that have come up.

a) I used the MUFJ link provided by Tkydon (thank you!) do the convert the relevant USD items to JPY using the daily rate. One detail I cannot find a solid answer for online is how to handle rounding though. For consumption tax, the rule is always to round down to the closest whole number. For converting foreign currency, the only guidance I could find online was to choose a method of rounding and stick to it. Will that work?

b) For the interest (Stock Yield Enhancement Program), I believe this will be counted as interest income (利子所得) instead of miscellaneous income (雑所得). Is that correct?

c) I used the daily Japan rates to find the purchase price of each transaction in JPY. I will keep this on record for whenever I sell the ETFs.

Though I am still not totally clear on how much (if at all) I need to track to the currency conversions before/after buying the ETFs. For example, the total process is as follows:
JPY amount send to IBKR ==> Convert JPY to USD (with IBKR's rate) ==> Purchase ETFs with USD (that I need to keep track of JPY cost) ==> Sell ETFs for USD (that I need to keep track of JPY income)
After that, I could either convert the amount to JPY on IBKR side, then remit to Japan bank account. Or I could send in USD and let it convert to JPY when it arrives in my local bank.

Do I only need to focus on tracking the JPY value of the Purchase/Sale of the ETFs, or do the other steps need to be followed closely as well? Any potential pitfalls?

[captainspoke]

...
a) I used the MUFJ link provided by Tkydon (thank you!) do the convert the relevant USD items to JPY using the daily rate. One detail I cannot find a solid answer for online is how to handle rounding though. For consumption tax, the rule is always to round down to the closest whole number. For converting foreign currency, the only guidance I could find online was to choose a method of rounding and stick to it. Will that work?
...

I just let the spreadsheet do it. Dollar figures as usual, so two decimal places since things can be listed in cents. For the TTM rate, the MUFJ site gives to two decimal places, so I use that.

Those two are multiplied and produce a yen figure, for which I don't allow decimal places to be displayed. To grab some numbers out of the air, $12.54 times (TTM) 136.87, = ¥1716.3498, but the column is set for no decimals, so it auto-displays ¥1716 instead.

In a column of numbers, some will appear to have been rounded up, some down. As an experiment, note the column total for doing it that way, then simply reset it with a few clicks to show (e.g.) six decimal places--the total at the bottom should be the same. (The spreadsheet 'knows' the full, underlying figure with all the decimal places, and is totaling that, it's just displaying as rounded to even yen.)

[captainspoke]

...
Though I am still not totally clear on how much (if at all) I need to track to the currency conversions before/after buying the ETFs. For example, the total process is as follows:
JPY amount send to IBKR ==> Convert JPY to USD (with IBKR's rate) ==> Purchase ETFs with USD (that I need to keep track of JPY cost) ==> Sell ETFs for USD (that I need to keep track of JPY income)
After that, I could either convert the amount to JPY on IBKR side, then remit to Japan bank account. Or I could send in USD and let it convert to JPY when it arrives in my local bank.
...

I've never tracked currency gains/losses apart from the buy/sell dates of an ETF or stock. What a hot mess that would be...!

Perhaps you are "supposed" to do that, but I've been converting yen to dollars and sending that off since the 90s, and it would probably take a forensic accountant to figure it all out.

Eg, I sent ¥ into $ in 1995 (and a zillion other times), I've never accounted for how the value of that changed for the period(s) since then when it may have been sitting in an MMF.

Similarly with a dividend paid--if I was paid a $100 dividend on a certain date, and waited a few months, or a few years, before reinvesting it, any change in value (in yen terms) during that period is lost to time. It hasn't always been so, but these last few years I've had 50-70 rows on my dividend sheet. Software, good software, might be able to track all those dates and changing values, but by hand it would boggle the mind.

The most important bit: I've never been called out on this, even when I was audited and then rechecked several years later. They absolutely did not do this--I wasn't even thinking in terms of this (change in value of a simple MMF cash holding over time), and if they had begun explaining it as they explained what they had done--and what they wanted me to be doing--I'd've noticed.

*

Incidentally, here are my column headings for my gain/loss sheet. Every year I think about whether I should re-rder some things to make it more understandable/easier, but I don't. Old habits die hard. Also this has withstood the test of time--someone at the NTA has undoubted looked at it and understood it enough not to call me about it.

Edit: the column there "Withholding Tax" could be eliminated. There never is any, this column might have been the NTA's suggestion, since for the US, non-US people do have 10% withheld. But as a US tax filer/citizen, there never is.