{"id":489,"date":"2022-03-21T16:25:16","date_gmt":"2022-03-21T16:25:16","guid":{"rendered":"https:\/\/www.sasscpas.com\/blog\/?p=489"},"modified":"2022-03-21T16:25:18","modified_gmt":"2022-03-21T16:25:18","slug":"nft-tax-guidance-for-creators-investors-and-traders","status":"publish","type":"post","link":"https:\/\/www.sasscpas.com\/blog\/index.php\/2022\/03\/21\/nft-tax-guidance-for-creators-investors-and-traders\/","title":{"rendered":"NFT Tax Guidance for Creators, Investors, and Traders"},"content":{"rendered":"\n

By George Batas, CPA<\/strong><\/p>\n\n\n\n

Did you know that over $17.7 billion has been spent<\/a> on NFTs in 2021 alone? And that the most expensive NFT sold to date was worth $91.8 million? Given these numbers, you might be asking yourself, what is this booming industry, how can I get involved, and what are NFT tax implications?<\/em> Well, let\u2019s talk about it. <\/p>\n\n\n\n

What is an NFT?<\/strong><\/h3>\n\n\n\n

An NFT, or non-fungible token, is a digital asset that is\nunique and cannot be transferred. It represents both tangible and intangible\nitems including art, GIFs, videos\/sports highlights, collectibles, music etc.\nEach NFT is registered online using blockchain technology similar to the way\nthat cryptocurrency works. The registration system allows each NFT owner to\npossess proof of ownership of that asset. You can\u2019t simply download a digital\nfile or take a screenshot of an NFT and say you have ownership of that actual\nfile without authentication. <\/p>\n\n\n\n

IRS Guidance on NFTs<\/strong><\/h3>\n\n\n\n

Tax law is often slow to keep up with our ever-changing society. While NFTs have been around since 2014, their popularity and explosion into the mainstream scene only recently occurred in 2021. Due to the rapid uptick in popularity, the IRS has not yet had the ability to issue much guidance on NFT tax. <\/p>\n\n\n\n

What we do know is that NFTs can be viewed as collectibles,\ninvestments, or inventory, and depending on which category it falls in, the\ntaxation can vary greatly. To figure out the tax consequences of an NFT\ntransaction, the first step is to figure out whether someone is a creator,\ninvestor, or trader of NFTs.<\/p>\n\n\n\n

NFT Creators<\/strong><\/h3>\n\n\n\n

While this is a very new area and the IRS has not yet weighed in, the most likely NFT tax scenario for creators is that they will be subject to ordinary income tax and even self-employment taxes which would occur once the NFT project has been sold. The gain from the sale or exchange of the NFT for a creator will most likely be taxed as ordinary income because the NFT is part of the creator\u2019s business. Likewise, any percentage from subsequent sale proceeds would be classified as ordinary income as well. <\/p>\n\n\n\n

NFT Investors <\/strong><\/h3>\n\n\n\n

NFT investors are typically people who buy and sell NFTs at\na profit. Therefore, unless the NFT falls outside of the definition of a\ncapital asset, an NFT investment that is sold would be taxed as a capital gain.\n<\/p>\n\n\n\n

NFT Traders<\/strong><\/h3>\n\n\n\n

An NFT trade occurs when an owner trades their NFT for\nsomeone else\u2019s NFT or other cryptocurrencies. From the IRS perspective, if you\nare trading an NFT for another NFT, they will consider this a taxable\ntransaction even though you never received any cash. <\/p>\n\n\n\n

Conclusion <\/strong><\/h3>\n\n\n\n

Whether you\u2019re involved in creating, investing, or trading\nNFTs, it\u2019s important to be aware of the tax considerations. When taxable events\nare triggered, it\u2019s also important to know your whether your taxable gain is\ngoing to be considered capital in nature or ordinary.<\/p>\n\n\n\n

Therefore, it\u2019s critical to understand the full scope of the\ntax consequences and potential tax strategies available before<\/em> any major\ntransactions occur. While understanding the differences between ordinary income\ntax and capital gains tax on NFTs can be confusing, Sasserath & Co. can\nhelp clear the fog. <\/p>\n\n\n\n

Contact us<\/a>\nfor guidance on your next NFT sale, investment, or purchase. <\/p>\n","protected":false},"excerpt":{"rendered":"

By George Batas, CPA Did you know that over $17.7 billion has been spent on NFTs in 2021 alone? And that the most expensive NFT sold to date was worth $91.8 million? Given these numbers, you might be asking yourself, what is this booming industry, how can I get involved, and what are NFT tax […]<\/p>\n","protected":false},"author":2,"featured_media":493,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[33],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.sasscpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/489"}],"collection":[{"href":"https:\/\/www.sasscpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sasscpas.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sasscpas.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sasscpas.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=489"}],"version-history":[{"count":3,"href":"https:\/\/www.sasscpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/489\/revisions"}],"predecessor-version":[{"id":492,"href":"https:\/\/www.sasscpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/489\/revisions\/492"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.sasscpas.com\/blog\/index.php\/wp-json\/wp\/v2\/media\/493"}],"wp:attachment":[{"href":"https:\/\/www.sasscpas.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=489"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sasscpas.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=489"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sasscpas.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=489"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}