3 things every NFT investor should know to avoid a tax nightmare
2021 will be remembered as the year of nonfungible tokens (NFTs). In a year where names like Beeple and Bored Ape Yacht Club dominated the headlines, it’s estimated that NFTs have generated more than $23 billion in trading volume.
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.
After the 2017 bull run, many crypto traders found themselves in a difficult position. Though they had racked up large tax liabilities while the market was going up, they no longer had the money to pay their tax bills after the crash. Many of these traders simply were unaware of the tax implications of their transactions and did not prepare themselves accordingly.
In this article, we’ll share three things that every NFT investor needs to know about taxes if they wish to take profits without getting in trouble with the Internal Revenue Service, or IRS.
Related: Things to know (and fear) about new IRS crypto tax reporting
Disposing of your cryptocurrency is considered a taxable event and buying an NFT with Ether (ETH) or another cryptocurrency would fall into this category. You’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it.
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
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