- Virtual currencies have until now been defined by the IRS as digital tokens “that function as units of account, stores of value, or exchange mediums.”
- The word “virtual currency” has been replaced with “digital assets” in language pertaining to taxes for crypto.
- As a result, NFTs are subject to the same tax as cryptocurrencies and stablecoins.
A draft of an updated tax form for 2022 has been released by the Internal Revenue Service (IRS). This draft is providing clarity on tax guidelines pertaining to crypto, particularly NFTs.
Using stablecoins, crypto, and NFTs equally
When it comes to taxes for cryptocurrency, “virtual currencies” have been replaced by “digital assets.”
Thus, NFTs are subject to the same taxes that are imposed on cryptocurrencies and stablecoins. That is because they are another digital assets.
According to the draft, “Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger.”
“For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins” it continued.
Digital asset holdings will be required to be disclosed in a separate section of the IRS’s 1040 tax form for 2022.
Looking for a piece of the NFT action
There has been an increase in partnerships coming into the digital art industry. From industry sectors such as fashion and entertainment, as well as the auto industry in recent years.
The United States Patent and Trademark Office (USPTO) received 6366 trademark applications. This was over the period of January 2022 to September 2022 for NFTs and blockchain-related products.
During 2021, however, there were 2142 trademark applications filed. This is an indication of the popularity of NFTs in the industry.
By the end of this year, Statista estimates that revenue from NFTs will reach $731 million. This figure will grow at a rate of 23.88 percent to reach $2 billion by 2027, with a compound annual growth rate of 23.88%.
Until now, the IRS has defined virtual currencies as digital tokens that can serve as accounts, stores of value, or exchange mediums, all of which function as virtual units of account.
In the current state of crypto tax laws, the United States is ranked 56th according to Coincub.
There is no doubt that the IRS is interested in taking a piece of the pie from the NFTs, considering NFTs generate the most revenue in the U.S. currently.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.