How NFTs are taxed

Behind the silly pictures, NFT are digital assets. And like any other sort of asset, they’re subject to taxes. So whether you’re an investor, trader, collector, creator, or even just a lurker; understanding NFT taxes can help in the long run.

So, how much taxes do you pay when you trade an NFT? That can depend on several factors, including but not limited to:

• how long you held the asset for
• what type of NFT it is
• your annual income
• whether you gained a profit or had a loss
• whether you’re a creator or a trader

Let’s take a deeper look at the last one.

Taxation for creators

Being an NFT creator translates to being self-employed. So any income that you generate from selling NFTs can be added to your usual income and will only be taxed at your usual income tax rate. You may also have to pay some self-employment tax based on where you’re from. The royalty fees you earn are no different. They’ll also be added to your annual self-employment income. There’s no tax on simply minting the NFTs so you’ll only be taxed if your assets make a sale.

“Sometimes” your NFT can be considered an art piece by the government and the NFT taxation rules won’t apply anymore. But there’s no clear guideline on which NFTs are art and which are not, according to the IRS.

Taxation for traders/investors

An NFT trader or investor is treated the same as a traditional trader. Any money you make through NFTs will come under capital gains. So if you also invest in stocks and bonds, it’s safe to say that the earnings from the sales of your NFTs will also be taxed the same way.

However, purchasing an NFT is a different story.

We usually buy NFTs in exchange for crypto. While we see crypto as a usual currency, governments all over the world think of it as a digital asset too. So, purchasing an NFT becomes more of a swapping of assets. Therefore, the taxes you pay in this case would also depend on how crypto is taxed in your country.

The amount of time you’ve held an NFT also matters here. If the NFT you’re selling was bought within one year, it is counted as a regular capital gain. But if you have been holding it for over a year, it will be considered a long-term gain, which is taxed differently.

While this may have given a fair idea of how taxes work in the NFT space, it varies a lot from country to country. So consulting an expert before investing or minting your collection can be a good idea.