[2026 Edition] Prop Firm Taxes and Filing Guide for Japan: Covering the ¥1.04M Basic Deduction

※ This article is general information, not individual tax advice — consult a tax accountant (zeirishi) for your specific situation. Tax rules change every year. (Last updated: April 26, 2026)

Prop firm tax treatment is genuinely confusing

How payouts from prop firms are taxed in Japan is a completely different matter from ordinary FX trading (domestic or overseas FX). If you assume "it's FX, so it must be taxed under the flat 20.315% separate self-assessment rate," and file that way, you risk getting flagged by the tax office.

The key point is that prop firm income isn't "investment profit from your own capital." You're trading with the firm's (the operating company's) money, and receiving payouts based on your results. For tax purposes, this is generally treated as compensation for providing a skill/service, and is typically classified as miscellaneous income (雑所得, zatsu shotoku) or business income (事業所得, jigyo shotoku) — i.e. subject to aggregate taxation (総合課税), rather than flat-rate separate taxation.

This article reflects Japan's 2026 tax reform (the basic-deduction increase) and is the current version. It covers the filing thresholds and expense-claiming practice for both side-income earners and full-time traders.

Income classification: miscellaneous income vs. business income

Prop firm payouts are generally filed as miscellaneous income, but under certain conditions there's room to treat them as business income instead.

Miscellaneous income (the default)

• You're doing this as a side activity alongside salaried employment, more like a part-time job
• There's some continuity/repetition, but it doesn't rise to the level of a business
• Your annual income from this is small

Business income (the exception)

• You're a full-time trader with continuous, stable earnings
• You keep books and have filed a business-opening notification (kaigyo todoke)
• Even as a side activity, your annual income exceeds ¥3M and you can make the case for it being a genuine business

Advantages of filing as business income:

1. You can use the blue-return special deduction (up to ¥650,000)
2. You can carry forward losses for 3 years
3. Broader scope for claiming expenses, such as pay to family members working in the business

That said, a 2022 revision to National Tax Agency (NTA) guidance clarified that "absent kept books and records, this is treated as miscellaneous income by default." To file as business income, you need double-entry bookkeeping plus retained balance sheets and income statements.

The threshold that requires a tax return

Salaried employees (side income)

Filing a tax return becomes mandatory once your annual income (payouts minus expenses) exceeds ¥200,000.

The threshold is based on "income," not "payouts" — meaning the amount after expenses are subtracted. For example:

• Prop firm payouts: ¥800,000/year
• Expenses (VPS, EA purchases, internet, course materials): ¥650,000
• Income: ¥150,000 → no filing required

Note: many municipalities still require a separate resident-tax (juminzei) filing, so watch out for that.

Full-time traders, unemployed individuals, and freelancers

A filing obligation arises once your annual income exceeds the basic deduction amount. The basic deduction has been raised under recent tax reform, to up to ¥950,000 for tax year 2025 and up to ¥1.04M for tax year 2026 (the exact amount depends on your income bracket — see the table below).

The 2026 basic-deduction change

An important change: starting with income earned in 2025 (filed in Feb-Mar 2026), the basic deduction was substantially raised:

Furthermore, starting with tax year 2026 (filed in 2027), the deduction goes up to a maximum of ¥1.04M (the standard ¥620,000 plus a special addition of ¥420,000, for the bracket with total income of ¥4.89M or less). This was enacted as part of the FY2026 (Reiwa 8) tax reform, and passed into law in March 2026. In other words, a full-time trader with annual income of ¥1.04M or less owes no income tax for tax year 2026. That said, the basic deduction for resident tax (juminzei) stays fixed at ¥430,000, so even at zero income tax, resident tax can still apply (primary source: National Tax Agency, FY2026 tax reform).

※ Check the National Tax Agency's official site for the full details of the reform.

What you can claim as expenses

Items commonly accepted as deductible expenses related to prop firm trading:

Note: for miscellaneous income, fees for failed challenges cannot be carried forward to the following year. As a rule, they're deducted against the same year's payouts. As business income, they can be carried forward as a loss for 3 years.

Timing of converting to yen, and FX gain/loss

Payouts from USD-denominated prop firms (FTMO, Funded7, etc.) are treated as income "realized" at the moment they're converted into Japanese yen.

The standard treatment

1. When the payout is earned: convert to yen using the TTB rate (the bank's telegraphic transfer buying rate, i.e. the customer-facing mid rate) on the date it's earned, and recognize that as income
2. When you actually convert to yen: the difference between the rate at the time the payout was earned and the rate at the time of conversion is FX gain/loss

Example:

• In March 2026, a $1,000 payout from FTMO → converted at the March TTB rate of ¥150 → ¥150,000 recognized as income
• In June 2026, that $1,000 is converted at a rate of ¥160, yielding ¥1.6M → the ¥10,000 difference is an FX gain (miscellaneous income)

When receiving via crypto

Payouts received in USDT or similar follow the crypto-to-fiat conversion rules. You need to convert to yen at the market rate at the time of receipt and recognize that as income, and this gets complicated. A tax accountant consultation is recommended.

Impact on resident tax and health insurance premiums

Beyond income tax, this also affects resident tax (juminzei, roughly 10%) and national health insurance premiums (kokuho, which vary by municipality).

• Salaried side-income earners: if you don't want your employer to find out about your side income, choose self-payment (futsu choshu) for resident tax (check the "I will pay this myself" box on Form B, page 2 of the return)
• Full-time traders: national health insurance premiums are calculated based on the prior year's income. Premiums can jump sharply the year after a high-income year

Automate your records to make filing easier

The hardest part of filing a tax return is aggregating trade history and payout history. Since prop firm traders often run multiple accounts in parallel, tracking everything by hand in Excel across multiple firms (MTF) is a good way to burn out.

Using prop-memo.com's EA Tracker + P&L dashboard (/pnl) gets you:

• Every trade automatically logged just by running the MT4/MT5 EA
• Automatic daily/monthly P&L aggregation across accounts (already converted to JPY)
• CSV export for easy handoff to a tax accountant or accounting software
• Payout history managed in one place via /dashboard

Automating your day-to-day records means you don't have to scramble during tax season. See how to set up the EA Tracker here.

Filing schedule

E-filing (e-Tax) can be completed entirely with a My Number card and a smartphone. Income tax refunds also typically land within about 3 weeks.

FAQ

Q. Do I have to use the exact daily exchange rate?

As long as you apply it consistently, using a month-end rate or an end-of-period rate is also accepted (on a TTB basis). Converting a full year of payouts using the exact daily rate isn't realistic, so processing monthly is fine.

Q. If I had a losing year on prop firms, do I not need to file?

Netting gains and losses within the miscellaneous income category (offsetting within the same miscellaneous-income category) is possible, but you cannot net it against salary income or other categories. Also, losses in miscellaneous income cannot be carried forward to future years. Under business income, carrying forward is possible.

Q. Won't the tax office miss it since it's an overseas firm?

They won't miss it. Under the Common Reporting Standard (CRS), information from overseas financial institutions is automatically exchanged, and domestic bank records also remain when you convert to yen. Not filing carries a high risk of penalties later — additional tax for failure to file and late-payment interest — so make sure to file.

Q. What if I receive payouts in crypto?

Convert to yen at the market rate at the time of receipt and recognize it as income. A further gain/loss calculation is triggered again when you convert it to yen, or exchange it for a different cryptocurrency. This gets complicated, so a specialist consultation is recommended.

Final checklist

Confirm at least these before submitting to the tax office:

• You've correctly selected your income classification (miscellaneous income / business income)
• You've aggregated payouts on an accrual basis (converted to yen at the rate on the date earned)
• You've kept receipts and statements for your expenses
• You've fully recognized FX gains/losses from converting to yen
• You've chosen how resident tax is collected (if this is side income)
• You understand the impact on health insurance and national pension
• You've drafted your return using the National Tax Agency's tax return preparation portal

Related tools on prop-memo.com

• 💰 P&L dashboard (/pnl) — automatically aggregates daily/monthly P&L across accounts (ideal for tax records)
• 🤖 EA Tracker (MT4/MT5) — automatically logs your trade history
• 📊 Purchase history management (/dashboard) — manage challenge fees and payout history in one place
• 🔍 Plan comparison/search — compare the price of your next challenge purchase on an expense basis

To repeat: please confirm individual tax questions with a tax accountant. This article is a general guideline, not a tailored solution for your specific situation.