Express
Tax Season Turbulence: NFTs
Summary: With the end of tax season approaching, many non-fungible token (NFT) owners, both current and former, are struggling with how to classify and calculate their NFTs on their upcoming tax documents. After exploding onto the scene last year, NFTs are creating new problems that accountants and tax experts have not had to deal with before. ...
With the end of tax season approaching, many non-fungible token (NFT) owners, both current and former, are struggling with how to classify and calculate their NFTs on their upcoming tax documents.
After exploding onto the scene last year, NFTs are creating new problems that accountants and tax experts have not had to deal with before. After all, this is the first season NFT owners and sellers need to consider their virtual assets when conducting their paperwork.
The market for NFTs, which are unique collectible digital assets, rose to more than $44 billion in 2021, as a plethora of fields and organizations got in on the boom. NFTs take the form of digital art, digital products and digital assets that have a real-life product attached to it.
With such a boom to the industry, the IRS has taken note, as commissioner, Charles Rettig noted the crypto and digital asset space is a large contributor in the government’s estimated $1 trillion in uncollected revenue.
Even President Joe Biden got in on the action, signing an executive order earlier this month demanding a whole-of-government assessment of U.S. crypto policies.
The challenge then becomes, how do buyers and sellers report these to the IRS with tax codes that do not formally address digital assets?
There are many factors that make buying a selling tokens and NFTs taxed as income, short- or long-term capital gains, collectibles or as dividends.
In addition, because many trading platforms are decentralized it’s really up to the trader to assess what they owe the IRS.
The problem is, it is not cut and dry, primarily because NFTs are such a new product. However, NFT marketplaces have their consumers’ backs and some are teaming up with tax specialists to help users determine what they must report to the IRS, including heavyweight marketplace OpenSea. There is also a cryptocurrency tax automation software called TaxBit that can help.
Many of these technologies are in their infancy and it could be awhile before the IRS comes out with specific guidelines to help Americans file their taxes accurately. For now, most owners and sellers will have to rely on their preferred platforms for guidance. But one thing is clear: the government is cracking down on NFTs.
Author: Tyler Irvin
