Death and taxes are certain! But that doesn't mean that you have to get into tax trouble, just make sure to know these few things:
The rise of NFTs has ushered in a new generation of investors who spend time scouring platforms like Discord and OpenSea looking for the next 100x opportunity. However, it’s important for the NFT investor of today to keep tax implications in mind. Otherwise, they risk repeating the mistakes of the past.
Many NFT traders incur large tax liabilities because the price of their coins has appreciated significantly since they were originally received. To avoid running into issues paying taxes, you should calculate your potential tax bill for every trade that you make and try to put the money aside before tax season.You are taxed when you sell your NFT
You can determine whether an NFT is for investment or personal use by looking at your reason for making the purchase. Do you intend to make a profit or do you intend to just enjoy the NFT for your own use without considering whether the asset will appreciate in value? Any NFT that’s not a piece of artwork would likely not fit under the collectible tax rules without additional IRS guidance. For example, it’s reasonable to assume NFTs representing Uniswap v3 liquidity positions would not be considered collectibles.
The tax law around collectibles is complex, and when assessing the collectible status of your digital assets, it’s a good idea to speak to a tax professional to figure out the best position to take for your situation.Of course, it’s possible that this issue won’t matter for most NFT investors at this time. Because NFTs are so new, it’s likely that most sales involve NFTs that were held for less than 12 months.
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