Are NFTs subject to tax?

Esseson Raphael

The short answer is yes, but there is more to the story, and because this is an emerging space, there are some gray areas. Essentially, it depends on how involved you are with them. In the NFT marketplace, you can either make and sell NFTs (Creator) or purchase and resell (Investors). Creators produce NFTs and sell them on OpenSea, SuperRare, or Nifty Gateway. When NFTs are sold, they are liable to pay taxes. Here’s how that works:

Let's say Adam made a piece of NFT art and sold it for $4,000 worth of ETH. He'd declare $4,000 as "regular income." To reduce taxable income, he can deduct usual and necessary business expenses if he is creating NFTs. Self-employment taxes will also be levied on this income.On the other hand, It is the responsibility of an investor to buy and sell NFTs on the open market to make a profit. Investors in NFTs must pay capital gains tax. The majority of people fall under the Investor category. NFT investors face the same rules as cryptocurrency traders. To buy NFTs, ether and other cryptocurrencies like bitcoin are commonly used. Unfortunately,  high-income earners have to deal with huge tax bills once they sell them, because NFTs are regarded as "collectibles," and they do not come cheap.

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