NFT Tax Compliance and Reporting
As an NFT CPA and Accounting firm, we deal with NFT and cryptocurrency compliance regularly. While the laws governing digital assets are straightforward, the reporting requirements are onerous and requires expertise and proper software. While the bulk of the challenges are faced by cryptocurrency traders, anyone that is generating or trading NFTs often will utilize cryptocurrencies in the exchange. Even the straightforward use of dollar-pegged currencies still have compliance requirements.
NFT Minting creates additional complexity. The minting process generates revenue with the creation of new assets, while requiring tracking of the costs of creating and minting the asset. Although only a minority of our Web3 clients are minting new NFTs, we are exciting to have more and more of these clients as the market expands. Fortunately, after 15 years since the emergence of blockchain, NFTs have the pre-established precedents and procedures from Bitcoin mining. New opportunities for the creators of NFTs like supporting DAOs can create opportunities and compliance challenges.
It would seem like the blockchain solves all reporting problems. However the United States taxation system is based on voluntary reporting and compliance, making it important that you are able to generate proper reports. While NFTs are often sold for cryptocurrency being used as cash, it is treated as a non-cash asset by the IRS, requiring similar to treatment to a barter based business. Properly calculating gains and losses is extremely important, because as a non-security assets, wash rules do not apply.
We are exciting to see NFTs create new business opportunities, new frameworks for artists to be compensated, and new business models. The tax system will take a while to catch up, making proper compliance more challenging. As a Web3 oriented CPA firm, we are excited to help you with your NFT accounting needs.