NFT Taxes for Artists — How Ordinary Income Taxes Work
Headlines of NFT artists banking millions of dollars have swarmed the masses. A 42-year-old NFT artist recently landed above the fold for making more than $738,000 selling NFTs within a brief 32-minute window. What should NFT artists know about taxes as the upcoming tax deadline looms?
Cryptocurrency makes NFT transactions happen, but NFT taxes for artists in the U.S. are based on fiat currency in USD. Here’s how it works and how to calculate your taxes owed as an NFT artist.
The IRS taxes NFT artist revenue as ordinary income.
NFT artist taxes are different from capital gains from cryptocurrency, which require crypto traders to pay capital gains taxes based on their sold asset’s change in value while they held it. Meanwhile, NFT artist revenue is added to and taxed as ordinary income, according to the IRS.
When you create, mint, and sell an NFT as an artist, any money you earn is added to your ordinary income. Your ordinary income may include earnings from a salaried job or a self-employed income-generating source.
NFT revenue is based on fiat currency value at the time of the transaction.
Any NFT revenue you earn typically comes in the form of Ether (ETH) or another cryptocurrency. The specific crypto asset depends on the blockchain that the NFT smart contract is on.
Whatever cryptocurrency the buyer sends you for the NFT, you will need to determine the fiat value in U.S. dollars (USD) at the time of purchase.
Cryptocurrency values change constantly and today’s value likely won’t be the same as its value when you sold the NFT. You will need to refer to the asset’s historical data to determine the coin and fiat value at the time of the transaction.
This ordinary tax method for NFT artist revenue also applies to U.S. contractors paid in cryptocurrency.
NFT artists need to pay attention to tax write-offs.
NFT artists trying to trim their taxable income may want to take advantage of eligible tax deductions. Materials, supplies, conferences, gas fees, commissions, developers, marketing, advertising, and internet expenses are all considered tax-deductible expenses if you earn revenue for your NFT mints and sales.
Ordinary income tax rates apply for NFT artists.
Federal income tax rates for the 2021 tax year range from 10 percent–37 percent. Here are the tax rate groups according to the IRS:
35 percent for people earning more than $209,425 ($418,850 for married couples filing jointly)
32 percent for people earning more than $164,925 ($329,850 for married couples filing jointly)
24 percent for people earning more than $86,375 ($172,750 for married couples filing jointly)
22 percent for people earning more than $40,525 ($81,050 for married couples filing jointly)
12 percent for people earning more than $9,950 ($19,900 for married couples filing jointly)
10 percent for people earning $9,950 or less ($19,900 for married couples filing jointly)
If you haven't done so already, put a percentage of your NFT sales aside for taxes. You will definitely need to pay taxes, and it's a wise choice to set yourself up for success ahead of time.