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irs crypto tax bitcoin nfts income-tax-491626_1280
Nexo

Bought NFTs? There’s A Tax For That, And Other Ways The IRS Is Eyeing Crypto

Tony Spilotro by Tony Spilotro
1 year ago
in Bitcoin
0
Advertisement

NFTs volume is dropping after an initial bubble-like storm of interest and millions pouring into the emerging digital goods market. But it could be because crypto investors are realizing as they wrap up last year’s taxes – extended to May 17 in the United States – that buying such tokens with Ethereum results in a taxable transaction.

Here’s some of the tax pitfalls investors might want to avoid, and how the IRS is cracking down on things like NFT sales and other unreported crypto earnings.

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Cryptocurrency Regulation And Tax Crackdown Is Coming

Like winter in Game of Thrones, regulation is coming to the crypto market, eventually.

Some governments are considering banning it, while others are embracing it. The United States, however, is somewhere in between. The country known for tech innovation and being the epicenter of finance, has been mostly neutral on crypto.

Related Reading | Engineer Uses Bitcoin to Defraud Microsoft of $10M, Evade Taxes

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There have been moments where policymakers appear opposed, while others are supportive and warn that preventing them will only stifle innovation and put the country itself at a disadvantage.

The comment that crypto being used for crime is minimal, is incorrect when you consider the $1 trillion in tax revenues lost in part due to cryptocurrencies, according to a statement from the IRS.

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total crypto cap nfts

NFTs aren't even included in the trillions worth of total crypto market cap | Source: CRYPTOCAP-TOTAL on TradingView.com

How The IRS Is Targeting NFTs, The Dark Web, And Past Crypto Transactions

In testimony before the Senate Finance Committee, IRS Commissioner Charles Rettig cited NFTs as an example of the growing ways the IRS is missing out on tax revenue.

For example, in the United States, cryptocurrencies like Bitcoin and Ethereum are considered property. When one piece of property is exchanged for another it is a taxable event, triggering capital gains or losses on whatever money is made or lost.

Anyone who is sitting in fat profit from the Ethereum bull run, who swapped ETH for an NFT now has capital gains to pay for whatever the difference is on the cost average of Ether from the time it was bought to the time it was traded.

Related Reading | Bitcoin NFT “The Death Of Fiat” Commemorates Historic Crypto Bull Run

 

Rettig says these non-fungible tokens and other aspects of crypto are “not visible” by design.

“In the criminal context, the IRS criminal investigations, cybercrime unit has been spectacular operating in the dark web, engaging with cryptocurrency-related transactions,” Rettig explained.

Kraken CEO Jesse Powell recently claimed a crypto crackdown was coming, and it could be coming from the IRS to start. The agency recently won a court approval to summons the transaction info of crypto traders on Poloniex dating back years.

Featured image from Deposit Photos, Charts from TradingView.com
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Tony Spilotro

Tony Spilotro

I'm Tony Spilotro. Behind the pseudonym, I'm a digital media executive and global remote work leader with a decade of content experience and excellence. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck - literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn't yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can't yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter and feel free to drop me a line if you would like to work together.

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