Say you make NFTs for fun and spend 0.1 Ethereum to mint an NFT. For example, paying gas fees to mint an NFT is a taxable event. If you’re creating, or minting, NFTs, it’s important to know what events are taxable and how they’re taxed.
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According to Shehan Chandrasekera, CPA and head of tax strategy at CoinTracker.io, a crypto tax software company, the specific tax implications of a given NFT depends on two things: whether you’re an NFT creator or investor and to what extent you’re interacting with NFTs (i.e. You can buy and sell NFTs in digital marketplaces like OpenSea and SuperRare.īut because the IRS has not released any specific tax guidance on NFTs, it can be a little confusing to navigate. Trading or Minting NFTsĪ non-fungible token, or NFT, is a token created on a blockchain that proves you are the only owner of that one-of-a-kind digital item, whether it’s a digital sports collectible or an animated flying cat with a Pop-Tart body. “I’m expecting more audits now that the IRS is requiring more tax forms and reporting,” says Walter. If you’ve avoided reporting your crypto on your taxes in the past, this year “might not be the year you’ll get away with it,” she says. The IRS is taking a harder look at cryptocurrency transactions this year and cracking down on anyone dodging taxes, says Walter. If you’re going in and out of different types of cryptocurrency, every single time you place that trade, it is a taxable event.” “You’ve got to be careful if you’re doing a lot of trading.
“Whenever you sell the investment, or exchange the investment for another investment, that is when a taxable transaction happens,” says Daniel Johnson, a financial advisor and founder of RE|Focus Financial Planning in Asheville, North Carolina. dollars, exchanging one cryptocurrency for another - buying Ethereum with Bitcoin, for example - or paying for goods and services with crypto. This includes selling your crypto for U.S. Things start becoming taxable when you use crypto as a method of exchange. dollars, you don’t have to report that to the IRS, based on guidance listed on your Form 1040 tax return. If your only crypto-related activity this year was purchasing a virtual currency with U.S.
dollars and keeping it within the exchange where you made the purchase or transferring it to your personal wallet does not mean you’ll owe taxes on it at the end of the year. When to Report Cryptocurrency Trades on Your Tax Return Purchasing Crypto With Dollars Here’s what you need to know about which activity you might need to report to the IRS, and how you can begin planning ahead for your 2021 taxes. But like most things related to digital currency, things can get a lot more complicated the more active you are. “Crypto did some exciting things in 2021, and then there’s a lot of people that have gotten into crypto in the last 12 to 24 months, so it might be their first time paying crypto taxes,” says Laura Walter, a certified public accountant and founder of Crypto Tax Girl.įor most people who buy and trade crypto within online exchanges, accounting for it in your tax return is relatively easy. The crypto market hit multiple all-time highs and lows throughout the year, leading to large gains and losses for many investors. More than half of current Bitcoin investors began investing in the last 12 months, according to a recent study by Grayscale Investments.
17, 2022, to file.Ģ021 was a big year for crypto, with many new investors buying in for the first time. If you requested an extension, you’ll have until Oct. The IRS considers cryptocurrency holdings to be “property” for tax purposes, which means your virtual currency is taxed in the same way as any other assets you own, like stocks or gold.Īpril 18 was the last day to file your 2021 taxes or request an extension to file. Yes, your Bitcoin, Ethereum, and other cryptocurrencies are taxable. If you invested in crypto last year, you may be in for a rude awakening this tax season. For more information, see How We Make Money. Some links on this page - clearly marked - may take you to a partner website and may result in us earning a referral commission. We want to help you make more informed decisions.
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