Resale Tax Return in Japan: Unsold Stock Is Not an Expense

This is a translation of the Japanese original. The Japanese version is authoritative; figures follow Japanese tax law.

The most common mistake in filing a tax return for resale (sedori) is assuming that the amount you spent on stock is an expense. Under Japanese income tax, the only purchase cost you may deduct is the cost of the goods that actually sold (the cost of goods sold), and stock still unsold at the end of the year is an asset carried over to the next year. If you spent 1.2 million yen on stock, sold 1 million yen, and 600,000 yen of stock is left at year-end, you are not in the red: you have a profit of 400,000 yen. Miss that gap, decide "I made a loss so I need not file", and you end up with an unfiled return and back taxes. This article sorts out how to calculate cost of goods sold and take a year-end inventory, the valuation method (the last purchase cost method), the 200,000 yen rule for employees and the filing line for full-timers, the secondhand dealer license you need to buy goods for resale, and how all of this differs from selling your own unwanted things on Mercari, using National Tax Agency and National Police Agency materials.

The short answer: only the purchase cost of what sold is an expense

How cost of goods sold is calculated

Cost of goods sold = stock at the start of the year (opening inventory) + purchases during the year − stock at the end of the year (closing inventory)
Profit (income) = sales − cost of goods sold − other expenses (shipping, platform fees, packaging and so on)

Example: purchases 1.2 million yen, sales 1 million yen, year-end stock 600,000 yen (first year)
Cost of goods sold = 0 + 1.2 million yen − 600,000 yen = 600,000 yen
Profit = 1 million yen − 600,000 yen − expenses of 100,000 yen = 300,000 yen (not "a loss because I spent 1.2 million yen and only sold 1 million")

Sources: National Tax Agency, "Notification of the valuation method for inventory assets for income tax"[NTA]; Basic Circular on the Income Tax Act (valuation methods for inventory assets)[NTA]

The 600,000 yen left over becomes next year's opening inventory and turns into an expense in the year it sells. In other words, a purchase always becomes an expense eventually, but only in the year the item sells. Buying heavily in December to inflate your expenses does not work.

How to take the year-end inventory: count what you hold on 31 December and value it at cost

Count every item you hold as of 31 December. That includes stock at home, stock already delivered to a fulfilment warehouse but not yet sold, and goods returned to you. Items already shipped but not yet paid for are sales, not stock.
Put a purchase cost on each item. If you have not notified the tax office of a valuation method, you use the last purchase cost method: value each item at the unit price you last paid for it. If you bought the same item at 1,000 yen and at 1,200 yen and two are left, both are valued at 1,200 yen, for 2,400 yen. Most sole proprietors use this method, and no notification is required.
Draw up an inventory list and keep it. Item name, quantity, unit price and amount. The total goes in the "closing inventory of goods" line of the blue-return financial statement or the statement of income and expenses. The inventory list is part of your books and must be kept for seven years (five for white returns). If you have no inventory list in a tax audit, the review starts from the premise that none of your purchases is deductible.
Stock that has fallen in value. Even if the market price drops, the rule is that you keep it at cost (the cost method). Where an item is so obsolete that it cannot be sold there is room to book a valuation loss, but the judgement is difficult, so check with a tax accountant. Goods you dispose of are an expense of the year you dispose of them.

Two years in flow (year 1: purchases 1.2 million yen, sales 1 million yen; year 2: purchases 800,000 yen, sales 1.5 million yen)

Source: compiled from the cost of goods sold calculation under the Income Tax Act. Other expenses are left out

The line at which you have to file

Your situation	Income tax return	Resident tax
Employee with a side business (year-end adjustment done)	Required if your resale income (sales − cost of goods sold − expenses) is more than 200,000 yen a year	File with your municipality even at 200,000 yen or less
Full-time (no other income)	Required once your income exceeds the total of the basic deduction (950,000 yen where total income is 1.32 million yen or less) and deductions such as social insurance premiums	Taxed once income exceeds 450,000 yen (varies by municipality)
Covered as a spouse's dependent	Above 620,000 yen of income the spousal deduction is out (from the 2026 (Reiwa 8) tax year; 580,000 yen for 2025. The special spousal deduction runs to 1.33 million yen)[NTA No.1180]	Health insurance dependency is judged on revenue of under 1.3 million yen (often measured on sales before expenses)

"Income" here is profit, not sales. On sales of 3 million yen, if purchases and expenses leave you with income of 150,000 yen, an employee with a side business does not have to file an income tax return (the resident tax filing is still required). Conversely, as in the example above, taking stock into account often pushes income over 200,000 yen, and what you thought was a loss turns into a failure to file. Failing to file costs you the tax itself plus the additional tax for non-filing and delinquency tax.

As for the class of income, it is business income if you keep and retain books and the scale is at least 10% of your main job, and miscellaneous income otherwise. For the test and what it is worth, see how the 3 million yen side-business question was settled. With business income you can use the blue return and its 650,000 yen deduction.

What counts as an expense, and what to watch

Expenses: selling fees (Mercari's 10%, Yahoo! Auctions, Amazon fees), shipping and packaging, travel to suppliers, storage fees at a fulfilment warehouse, equipment for photographing goods, research tool subscriptions, and the business share of communications and rent (apportioned).
Cost of goods sold: the purchase price of the goods, and the shipping and customs duty on the purchase (included in the acquisition cost of the goods).
Assets: computers, cameras and shelving costing 100,000 yen or more (depreciated; under a blue return, items under 300,000 yen can be expensed at once). See the basics of depreciation.
Not expenses: household goods for you or your family, goods bought as stock but used by yourself (booked as sales for personal consumption), and fines.
Points and coupons: the rule is that what you paid in points at the time of purchase may be included in the purchase cost, but points you earn need to be treated either as a discount or as occasional income. See tax on points programmes and flea-market apps.

The secondhand dealer license: required if you buy used goods for resale

As the National Police Agency and the Tokyo Metropolitan Police explain it, you need a secondhand dealer license where you buy and hold secondhand goods in order to resell them, and you do not need one merely to sell things you used yourself or unused items you bought for your own use[NPA]. Resale of used goods falls into the first category. Operating without a license carries up to three years' imprisonment or a fine of up to 1 million yen (Article 31 of the Secondhand Articles Dealer Act), and a conviction bars you from a license for five years.

Where you buy and sell only new goods (buying sale items new from a shop, the so-called new-goods resale), opinions differ, because an article that has never been used can still be a "secondhand article" once it has been traded once. The Tokyo Metropolitan Police define a secondhand article as an article that has been used once, or an article that has not been used but was traded for the purpose of use, so reselling new goods bought from a retailer can amount to secondhand dealing. The safe course is to hold a license.
You apply at the police station for your address (the community safety division). The fee is 19,000 yen and the review takes about 40 days. Individuals can obtain one.
The cost of the license is an expense (start-up costs or fees paid).

Selling your own unwanted things on Mercari is a different matter

Profit from selling movable property for daily use, such as clothes, furniture and books that you or your family used, is tax-exempt and needs no return (precious metals and works of art above 300,000 yen per item are excluded). The dividing line from resale is whether you bought the item in order to sell it: the moment you buy it for resale it is taxable, as miscellaneous income or business income. Even on the same Mercari account, keep separate records for clearing out your own things and for selling goods you bought as stock.

As for consumption tax, you become a taxable enterprise once your taxable sales (your resale revenue) two years earlier exceed 10 million yen. If you mainly sell to individual consumers, invoice registration is in principle unnecessary, though wholesale customers may ask for it. For how it works, see the invoice system's transitional measure.

Frequently asked questions

How do I value goods for which I have no record of the purchase cost?

Reconstruct the unit price from receipts, order histories or credit card statements from the time of purchase. Where there is no record at all, the tax office may refuse to recognise the purchase itself. Once you start reselling, record the item name, quantity, unit price and supplier for every purchase in a ledger and keep the receipts: that is the premise of taking an inventory.

I bought something intending to use it myself but sold it without using it. Is that taxed?

If you genuinely bought it for your own use and ended up selling it, it is a sale of movable property for daily use and is tax-exempt. However, if you repeatedly sell unused items in quantity you will be seen as buying for resale, and it becomes taxable. Frequency and quantity decide it, so keep records.

Summary

Only the purchase cost of items that actually sold (cost of goods sold) counts as an expense. Unsold year-end inventory carries over to the next year.
If purchases are ¥1.2 million, sales are ¥1 million, and year-end inventory is ¥600,000, the cost of goods sold is ¥600,000 — it is not a loss.
Inventory is counted as of December 31 and, absent any filed election, valued by the last-purchase-cost method. Keep the inventory list as part of your books.
For a company employee's side business, a tax return is required once income (sales minus cost of goods sold minus expenses) exceeds ¥200,000 a year; even below ¥200,000, a resident tax filing is still required.
Buying used goods for resale requires a secondhand dealer's license. Operating without one carries a prison term of up to 3 years or a fine of up to ¥1 million.

Reference links (sources)

This article is based on the materials below. Whether a secondhand dealer license is required turns on the facts of your trading, so if you are unsure, consult the community safety division of your police station.

Note: this article is general information. For an individual decision, check with the tax office or a tax accountant.