Simple Q&A - Stock market investing

[TokyoWart]

1. Offsetting losses. Let's say I own shares in A and B. Coming up to the end of the tax year, my shares in A have doubled in value, and my shares in B have doubled in value. Let's say I sell all of A -> this would make me susceptible to capital gains tax on the profit. Is there any downside to selling B at a loss and buying it back straight away? I would assume that on paper it looks like I've sold at a loss, and so that loss value offsets some of the gains taxes from A, but in reality my position in B hasn't changed.

I'm not sure if your wording of this question is accidental because you mention both A and B doubling in value so there's no loss to report. However if you realize a capital gain of 100,000 yen on A you can cancel the tax consequences by also realizing a 100,000 yen loss on B. In Japan you can buy those B shares back right away because there isn't a 30 day holding period necessary to prevent a "wash sale" but if you are also filing taxes in the US you would not be able to take the loss on B if you buy it back within 30 days and instead you have an adjustment to the basis which reflects the original purchase price.

[Viralriver]

Ahh yes, I meant one of them halved.

Okay, so let's say a 100k profit in A and a 100k loss in B. Is this a direct cancel out? Or can I only cancel 20k of the loss in B (equiv. to the CG tax I pay on my profit for A)? Also, is there an overall limit to how much loss can be offset?

I'm not a US citizen, so it looks like I can favour from this for volatile stocks (assuming timing was correct, hypothetically). Unless I'm missing something else.

Thanks!

[TokyoWart]

Okay, so let's say a 100k profit in A and a 100k loss in B. Is this a direct cancel out? Or can I only cancel 20k of the loss in B (equiv. to the CG tax I pay on my profit for A)? Also, is there an overall limit to how much loss can be offset?

On a 100,000 yen capital gain you'll pay around 20,000 in tax in Japan. If you realize a loss of 100,000 yen it can eliminate that tax or eliminate 20,000 worth of taxes on your dividends (100,000 yen in dividends would be taxed at about 20,000 yen) in Japan. There's no limit in absolute terms (e.g. a 100 million yen realized capital loss can offset a 100 million yen capital gain) but if your losses exceed your gains and dividends you can only roll them over for up to 3 years.

[zeroshiki]

Okay, so let's say a 100k profit in A and a 100k loss in B. Is this a direct cancel out? Or can I only cancel 20k of the loss in B (equiv. to the CG tax I pay on my profit for A)? Also, is there an overall limit to how much loss can be offset?

On a 100,000 yen capital gain you'll pay around 20,000 in tax in Japan. If you realize a loss of 100,000 yen it can eliminate that tax or eliminate 20,000 worth of taxes on your dividends (100,000 yen in dividends would be taxed at about 20,000 yen) in Japan. There's no limit in absolute terms (e.g. a 100 million yen realized capital loss can offset a 100 million yen capital gain) but if your losses exceed your gains and dividends you can only roll them over for up to 3 years.

Hi, I'm a complete newbie to this myself but say I have a specific account on Rakuten (特定口座) would they handle this whole thing automatically or is this one of those things that we need to file by ourselves?

[TokyoWart]

Hi, I'm a complete newbie to this myself but say I have a specific account on Rakuten (特定口座) would they handle this whole thing automatically or is this one of those things that we need to file by ourselves?

They should handle all of that automatically. The only possible problem is that they can't apply the losses across accounts (e.g. if you had gains in an SBI account but losses in Rakuten then the two companies do not communicate to have them offset) and I think they also do not manage the rollover of unused losses from one year to the next.

[Tkydon]

Definitely not a simple question

Yeah, post nomikai this is too much to take in

It's technically possible that you're at a paper loss in USD, but comparing the aggregate yen value at purchase times to the current yen value results in a profit, due to the dollar being worth more. Although your stocks are worth less, the dollar value still gets you more yen than before (but just holding dollars not stocks would have been better).

As for the account balance, the available amount often takes into account transactions that have not cleared yet, so if you made a recent sale, it usually takes a few days (until the 受渡日) in until you can actually use that money. Likewise a purchase order may lower your buying power even though the funds have not yet been debited.

If the Yen Exchange Rate goes from 103 to 111 as it has in the last 12 months, then You buy $ at the TTS 100+1 and you sell $ at the TTB 111-1
So you bought $ at 104 and sold them back at 110. That is a gain of 5.7%.

If the Yen Exchange Rate goes from 100 in 2016 to 111, then you buy $ at 101 and you sell $ at the TTB 110. That is a gain of 8.9%

If the Yen Exchange Rate goes from 76 in 2012 to 111, then you buy $ at 77 and you sell $ at the TTB 110. That is a gain of a whopping 42.85%

Now you stock can loose up to that amount for each duration, and you're still making a profit.

[Tkydon]

Am I reading the settings page correctly, my account is set up so I the taxing is done automatically?
With these settings, is there anything I have to do for the year end tax? Like print and attach something.
I am asking to make sure (and have the courage to do it at last).

Yep, it is set up correctly. My understanding is that the 20.315 % will be automatically taken for any capital gains you make on those investments you purchase in your tokutei account. In this case, you do not need to submit anything.

If you wanted to claim that capital gains tax back (offset losses), then you would need to submit at year-end.

That is nearly correct. If your total income from these Japanese sources other than your your Employment Income, then, as tax has been withheld at 20.315 % (15% National, 0.315 Reconstruction and 5% residential Taxes), then you do not have to file.
But, If your income from these sources other than your your Employment Income exceeds Y200,000, then you Must file, even though tax has been withheld at 20.315 % (15% National, 0.315 Reconstruction and 5% Residential Taxes).
If your income is from from accounts that have not been subject to withholding, or from overseas sources, then you Must file, as that income has not been subject to withholding tax at source.

[zeroshiki]

That is nearly correct. If your total income from these Japanese sources other than your your Employment Income, then, as tax has been withheld at 20.315 % (15% National, 0.315 Reconstruction and 5% residential Taxes), then you do not have to file.
But, If your income from these sources other than your your Employment Income exceeds Y200,000, then you Must file, even though tax has been withheld at 20.315 % (15% National, 0.315 Reconstruction and 5% Residential Taxes).
If your income is from from accounts that have not been subject to withholding, or from overseas sources, then you Must file, as that income has been subject to withholding tax at source.

So if you make a 200k profit in any given year, you're forced to do a kakutei shinkoku? Is that right?

[Tkydon]

That is nearly correct. If your total income from these Japanese sources other than your your Employment Income, then, as tax has been withheld at 20.315 % (15% National, 0.315 Reconstruction and 5% residential Taxes), then you do not have to file.
But, If your income from these sources other than your your Employment Income exceeds Y200,000, then you Must file, even though tax has been withheld at 20.315 % (15% National, 0.315 Reconstruction and 5% Residential Taxes).
If your income is from from accounts that have not been subject to withholding, or from overseas sources, then you Must file, as that income has been subject to withholding tax at source.

So if you make a 200k profit in any given year, you're forced to do a kakutei shinkoku? Is that right?

Yes, if you make an income/profit of more than 200k in Japan in the year that has been subject to Tax Withholding, even though Tax has been withheld, you still need to do a kakutei shinkoku.
If you make any income/profit outside Japan in the year, Japanese Tax will not have been withheld, so you need to do a kakutei shinkoku.
If you make any income/profit inside Japan in the year, that has not had Japanese Tax withheld, you need to do a kakutei shinkoku.

[Viralriver]

QQ: I see a lot of US investors talking about different tax rates for "short term" and "long term" investments, is that a thing here? I.e. consider the two following examples:

1. Buy $AMZN at $3500 today, sell tomorrow at $4000.
2. Buy $AMZN at $3500 today, sell in 1 year at $4000.

Are these taxed differently? I take it in the US it's to disincentivise day trading by applying a higher tax bracket on gains, but I haven't seen anything in JP. Have I missed something?