Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Investors riding the NFT craze are facing billions in taxes

Investors riding the NFT craze are facing billions in taxes

The NFT market has ballooned to $44bn, Chainalysis data shows, and rules about taxing the tokens are not clear.

It’s one of the hottest corners of crypto – and now the U.S. government wants its share of the profits.

Investors and creators of nonfungible tokens – a market that has ballooned to $44 billion, Chainalysis data show, and attracted fans from Justin Bieber to Melania Trump – face billions of dollars in taxes and rates as high as 37%, according to tax experts. Internal Revenue Service officials who deal with tax evaders say they are gearing up for a crackdown.

The surprises looming for NFT enthusiasts when tax filing season begins this month are crypto’s latest wake-up call from Washington as officials across the U.S. government set their sights on the burgeoning industry. The rules about taxing tokens aren’t clear, leaving NFT collectors scrambling to calculate how much they owe. Investors may not realize they need to pay any taxes at all or that they should file more than once a year, increasing the odds they’ll face future penalties.

“You don’t get to not report gains or losses because the IRS has failed to provide guidance that meets your expectations,” said San Francisco-based tax attorney James Creech. “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 representations of digital art and are expected to be a key part of the so-called metaverse that tech titans like Mark Zuckerberg say is the future of the Internet. The tokens are digital certificates of authenticity and can’t be replicated, which potentially increases their value.

Token sales skyrocketed last year, with NFTs such as CryptoPunk #3100 — which features an alien sporting a headband — selling for $7.7 million after an initial price of $2,000 in mid-2017. “Everydays: the First 5000 Days” from digital artist Mike Winkelmann, also known as Beeple, sold for an eye-popping $69.3 million.

Like so much in the crypto universe, it’s hard to compare tokens to more traditional investments and regulators including those at the IRS are grappling over how to police them.

When a creator sells an NFT on a platform like OpenSea or Rarible, most tax experts agree that the profits should be considered ordinary income and be subject to a rate as high as 37%. Investors who buy the tokens owe capital-gains taxes if they used another cryptocurrency for the purchase, and when they sell it.

Beyond that, the rules are murky. There are questions about whether tokens should be taxed like art “collectibles,” which comes with a long-term capital-gains rate of up to 28%. That’s compared to 20% for most cryptocurrencies and stocks. The infrastructure bill President Joe Biden signed into law last year will make it harder for people to hide digital assets, but the Treasury Department has not said whether that includes NFTs.

It’s hard to calculate exactly how much tax is owed, but experts such as Arthur Teller, chief operating officer at TokenTax, estimate the total NFT tax bill could run into the billions. Some people aren’t aware they owe taxes quarterly and may already face penalties for just filing an annual return, said TokenTax’s co-founder, Zac McClure. Other people likely don’t know there are any reporting requirements, said Shehan Chandrasekera, head of tax strategy at CoinTracker.

Tax Evasion


With so much money at stake, the IRS will likely be forced to clarify the rules, but it may begin auditing people first, said Michael Desmond, the former chief counsel at the IRS who is now a partner at Gibson, Dunn & Crutcher.

IRS investigators are preparing for a possible surge in cases as soon as this year.

“We subsequently will probably see an influx of potential NFT type tax evasion, or other crypto-asset tax evasion cases coming through” said Jarod Koopman, acting executive director of cyber and forensic services at the IRS’s criminal investigation division.

Meantime, NFT aficionados should brace for a lot more paperwork.

“It’s an absolute nightmare,” said Adam Hollander, an NFT investor and creator of the “Hungry Wolves” collection, adding that he has spent 50 hours combing through months of transactions. “There are people who aren’t going to be willing to do what I’m doing.”

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Hungary Ranked Among the World’s Safest Travel Destinations for 2025
G7 Leaders Fail to Reach Consensus on Key Global Issues
FBI and Senate Investigate Allegations of Chinese Plot to Influence the 2020 Election in Biden’s Favor Using Fake U.S. Driver’s Licenses
×