Tax season for crypto users based in the United States is on its way. However, some might be surprised because people who buy a non-fungible token from their crypto holdings profit might have to pay tax, which is up to 20%.
Robert Frank from CNBC says that people who are buying NFTs will face large tax bills for deals that, in a normal situation, were considered tax-free. Why is that? The Internal Revenue Service thinks of crypto as a capital asset and not a currency. When you choose to exchange crypto for any other asset, you have capital gain or loss, which is very true.
Right now, a lot of popular auction houses have their offices in the United States, however, most of the platforms with NFTs don’t report to the IRS. For instance, an NFT marketplace called Nifty Gateway is established in San Francisco, but they have buyers from different parts of the world. Anyone who decides to purchase something from their platform - whether it’s sports collectible NFTs or a piece of artwork is declared based on the laws of their residence country.
There was an auction of NFT from a digital artist called Mike Winkelmann and the estimated value of it was around $70 million. If crypto users based in America used Ethereum (decentralized, open-source blockchain) for this exchange, the tax payout for this transaction would be millions of dollars.
Some people might wonder why the Internal Revenue Service decided to tax crypto users who purchase NFTs. The digital asset market had a huge increase over the last few years, Because of that, crypto users who have a financial interest in any virtual currency are required to declare anything that they receive, sell, and exchange. Normally, people who are holding cryptocurrencies like Bitcoin or Ethereum do not have to pay taxes, unless they choose to exchange them for another token.
The deadline for U.S tax returns is April 15, however, according to the IRS, it might be postponed.