The investors following the NFT craze are facing billions in taxes as the market ballooned to $44 billion, according to the data from Chainalysis that we discuss more in our latest cryptocurrency news.
NFTs are one of the hottest corners of crypto now and the US government wants its share of the profits. The investors following the NFT craze are having some trouble, however. Chainalysis data shows that the investors are facing billions of dollars in taxes and rates as high as 37% and the Internal Revenue Service officials who deal with tax evaders say they are preparing for a crackdown.
The surprises looming for the NFT enthusiasts when tax filing seasons start this month are crypto’s latest wake-up call from Washington and the US government which set their eyes on the industry. The rules about taxing the tokens are not clear yet which leaves NFT collectors scrambling to calculate how much they owe. The investors may not realize that they need to pay the taxes at all or they should file more than once a year so it is really confusing. San Francisco-based tax attorney James Creech wrote:
“You don’t get to not report gains or losses because the IRS has failed to provide guidance that meets your expectations. The harder it is for people to get to a reasonable — or ideally, a right — conclusion, the easier it is to ignore it.”
NFTs gained attention as a representation of digital art and they are also expected to become a part of the metaverse with tech companies like Mark Zuckerberg investing heavily in this part of the industry. The tokens are digital certificates of authenticity and cannot be replicated which potentially increases their value in time. The token sales surged last year with NFTs like CryptoPunk #3100 that features an alien sporting headband that sold for $7.7 million after the initial price of $2000 during the mid-2017. Like so much in the crypto universe, it is hard to compare the tokens to the traditional investments and regulators including those at the IRS which grapple over how to police them.
When the creator sells an NFT on platforms like Rarible and OpenSea with most tax experts agree that the profits should be considered an ordinary income and become subject to a rate as high as 37%. the investors who buy the tokens owe capital-gains taxes if they use crypto for the purchase and also when they sell it.