Descrypt will be shutdown on 31 Jan 2024. Please download your tax reports, if any, before that.
Smoking Monkey NFT
NFT
Stable Coin
Tax
4 mins read

Understanding NFTs, Taxation, and the Impact of Stable Coin Collapse

MISHIKA
10 JUN 2022

Non-Fungible Tokens (NFTs), which provide a novel way to hold digital artwork, music, and other assets, have taken the world by storm. NFTs are becoming increasingly popular; however, concerns have been raised regarding their taxes and how the recent crash of stablecoins has influenced their market value.

What are NFTs?

Unique digital assets known as NFTs are non-transferable. Each NFT is distinct from other cryptocurrencies and cannot be duplicated. Each NFT is tracked on a blockchain where it is registered, making it difficult to copy and allowing the owner to be identified. With no worries about being copied or stolen, this functionality makes it simpler for creators to sell their digital artwork and other assets.

NFTs have become popular for artists, singers, and creators to commercialize digital products. Using and making money off of NFTs includes:

  • Selling music and audio files, such as songs, albums, and sound effects.
  • Selling digital art, such as paintings, illustrations, and photographs.
  • Purchasing and selling virtual property in online games and virtual worlds.
  • Selling trade cards and sports cards as well as other memorabilia.
  • Selling tweets, memes, and other internet material.

By enabling the purchase and sale of digital assets in the same manner as physical ones, NFTs have completely altered how people perceive ownership of digital assets.

Taxation of NFTs

The regulations around NFT Taxes are still debatable, and the laws have regional variations. NFTs are subject to capital gains tax in the US since the IRS views them as property. Capital gains tax is computed based on the difference between the purchase and sale prices.

Yet, taxing NFTs is not always straightforward, particularly when it comes to royalties. For instance, the author of an NFT might be required to pay income tax if the NFT is sold and the creator earns a royalty for each subsequent sale. NFT taxes is a complicated subject, so speaking with a tax expert is essential to comprehend the relevant regulations fully.

Particularly in the US, we have recently rolled out NFT Taxation support, which, amalgamated with your other holdings, dramatically improves your crypto tax planning.

Impact of Stable Coin Collapse

The sales value of NFTs has been significantly impacted by the recent collapse of stablecoins, which are cryptocurrencies backed by reliable assets like the US dollar. In the first quarter of 2021, the trading volume of NFTs decreased by 51%, according to a report by Silicon Valley Bank. This considerable drop in sales value impacts buyers and sellers in the NFT market.

Since buyers rely on stablecoins to complete their transactions, the collapse of stablecoins has made it challenging for buyers to acquire NFTs. Additionally, because investors are now hesitant to purchase these assets, the failure has significantly reduced the sales value of NFTs. It has been challenging for buyers and sellers to determine the value of NFTs due to the absence of a reliable currency to tie them to.

The average cost of an NFT decreased from $4,000 to $1,200 in the first quarter of 2021, according to the same report, by 70%. But experts believe that once stable coins settle, the market will rebound in the upcoming months. The NFT market has proven to be resilient, and it probably will do so again.

Conclusion

In summary, NFTs are distinctive digital assets that present a fresh approach to purchasing and reselling digital artwork and other goods. The taxation of NFTs is still debatable, and the laws have regional variations. Understanding the relevant legislation necessitates consulting with a tax expert. The recent collapse of stablecoins has considerably impacted the sales value of NFTs. NFTs will continue to provide a distinctive manner of owning and selling digital assets. Despite this, experts expect the market to rebound in the upcoming months.

Since the NFT market is still developing, further adjustments will probably come. We anticipate new rules and regulations governing the taxation and sale of NFTs as the industry develops. But, NFTs have already altered how we view digital property and will continue to influence how digital works of art, music, and other assets are used.

You may also like
Bitcoins and golden credit card

Crypto Capital Gains

Capital gains on trading assets has been well defined for a long time. However Crypto being a new asset class still requires some clarity. Read on to learn all about ...

Mishika
10 March 2022
Ripped paper reveals bitcoins

Changes to Crypto Laws In 2022

Read about how crypto tax laws have changed since 2022. While regulators are still playing catch up game with fast moving crypto we will help you, retail customers, to wade ...

Mishika
15 March 2022
A layout of calculator, Bitcoin, and US currency

What is a Crypto wallet?

For a rookie Crypto world could be daunting. In this article we help you understand everything about Wallets.

Mishika
18 March 2022
Man typing laptop and bitcoin network

The Ultimate DeFi Tax Guide

Your one stop shop for all of DeFi taxation needs.

Mishika
26 March 2022
Letters arranged to form word Commission

Tax-Loss Harvesting in NFTs

Tax loss harvesting is a neat little trick to reduce tax burden. Since the crypto world has been in a turmoil this year read on to learn how to use ...

Mishika
01 April 2022
US Tax forms 1040 individual income tax return

All About IRS Guidance For Crypto

All about IRS guide for crypto taxation.

Mishika
07 April 2022
Man checking bankbook on white table

Reporting Cryptocurrency Transactions & Gains To The IRS

IRS has laid out clear guidlines on how to compute and report crypto gains. But are you aware of all the relevant IRS forms? Read on to know more.

Mishika
10 April 2022
Miniature businessman sitting on a digital coin

Crypto Donation and Tax Implications in the US

While donation in crypto is more of a novelty we have seen customers using crypto to donate to their near and dear ones. Be aware of its tax implications, read ...

Mishika
17 April 2022
Bitcoin on the stack of fiat coins

Best Crypto Exchanges in the US

Best crypto exchanges in 2023!

Mishika
28 April 2022