Some NFT owners and traders may face tax penalties if they don’t disclose their earnings from the tokens. At the moment, there are guidelines on how cryptocurrency is taxed, but the US lacks regulations regarding NFTs. As a result, NFT sellers who earn royalties by selling tokens overseas might have to pay both federal and state taxes.
NFT Market Boom Calls for Tax Regulations
The current state of the NFT industry is unclear, but the IRS wants a piece of the pie. Unfortunately, there’s a lack of instructions on how NFTs should be taxed, but some experts say the taxes could go up to 37%.
Some estimates show that the NFT industry saw $44 billion in transactions in 2021 as there were huge gainers among US artists.
Even though the guidelines on NFT taxation are unclear, that still doesn’t mean that earnings should not be reported to the IRS.
What’s more, those who didn’t file tax reports but have earnings from NFTs in their portfolios may face hefty fines.
Otherwise, experts believe NFTs should be taxed like capital gains from art collectibles, which is 28%. Regardless, any tax evasion will soon become impossible.
Current IRS instructions related to the digital assets and investments can be found in Notice 2014-21, 2014-16IRB938, Rev. Rul 2019-24, 2019-44 IRB1004, and ILM 20214020. However, none of these instructions mention NFTs.