The United States of America’s Internal Revenue Service (IRS) has restructured its yearly tax guide to account for NFTs and other “digital assets”. This decision is a part of the recent cryptocurrency regulations we have been witnessing in the past couple of months. The move has shown that the IRS is becoming more interactive with the crypto space.
In correlation with the IRS tax annual guide released this year, all “digital assets” – cryptocurrencies, stablecoins, and non-fungible tokens (NFTs) – fall under the same category of tax laws. The 2022 guide is different from the previous year’s guide in that these assets were regarded as “virtual currencies” and the guide only discussed the tax laws on cryptocurrencies and stablecoins.
The restructured draft of the 1040 tax form also states that tax-paying citizens who have “disposed of any digital asset” in 2022 must account for the action and pay capital gains tax. The asset disposal could be via an exchange, a gift, a sale, mining, staking, or simply a transfer. Moreover, any individual who collected NFTs as payment for services or let go of any digital asset that was intended for sale would have to declare these earnings as income.
To eliminate misunderstandings concerning any class of digital assets that might be created in the years to come, the tax guide states that if “a particular asset has the characteristics of a digital asset, it will be treated as a digital asset for federal income tax purposes.”
It is intriguing that the IRS chose to not categorize non-fungible tokens as collectibles, along with artwork, precious stones, or vintage pieces. These collectibles are subject to a different tax rate (28%) in comparison with stocks, bonds, and cryptocurrencies (0%, 15%, and 20%, based on the seller’s earnings).
As a means to ensure all required individuals and organizations duly pay taxes on their digital assets, the IRS has obtained a federal court order to instruct a bank to identify American taxpayers who haven’t accounted for their digital assets and paid the stated taxes on their crypto sales.
Failure of these individuals in paying taxes on their cryptocurrencies will result in a summons and a fine. Now, American crypto investors can relish the fact that the IRS has clarified its taxation laws and process on NFTs, stablecoins, and cryptocurrencies. Such actions validate and solidify the legitimacy associated with the crypto space.
With recent developments, crypto investors are finding it hard to capitalize on loopholes in tax laws. Countries are placing their focus on how their citizens’ digital assets should be taxed. In October 2022, Portugal, which was previously a safe spot for crypto investors, enforced a 28% capital gains tax on earnings made via crypto within a year. Just a month before that, Apple began its support for NFT transactions on its platform. However, this update came with a price – all NFT sales would be conducted under a 30% transaction fee.
Despite the huge losses that the NFT industry has taken this year, it is still one of the most sought-after, seeing as it is still welcoming new parties every day.