Some of the uncertainty around crypto assets should be resolved as the IRS continues to issue guidance, but for now there are a number of confusing tax rules, TaxBit Government Solutions Head Miles Fuller says. Opinion for TaxWeek, sponsored by koinly
As NFT initiatives by the world’s top enterprises continue to take flight, users should carefully consider the key tax implications:
The resulting net income from the sale of NFTs is characterized as ordinary income for tax purposes and may also be subject to self-employment tax if the NFT creation activity rises to the level of a"trade or business." However, there are currently no clear rules or guidance for when NFT activity rises to the level of a “trade or business.
Units received from staking are taxable upon receipt. In the case of Ethereum, staking rewards are currently locked and cannot be directly withdrawn, raising an open question as to whether the rewards should be taxed as income at fair market value according to the moment of receipt or at fair market value only once they can be unlocked.Net income is treated as ordinary income and may be subject to self-employment tax if the staking rises to the level of a “trade or business.
In the case of Ethereum staking rewards via a centralized exchange such as Coinbase, the platform may issue a 1099-MISC to individuals and the IRS for users who earn at least $600 in “miscellaneous” income. Regardless of whether or not rewards can be unlocked, the safest path is likely to treat all rewards as income at fair market value according to the moment of receipt.
While there is no official guidance on the tax treatment of DeFi activities such as yield farming, there are key points to consider: Units received as yield are likely treated as ordinary income according to the fair market value of the units at the moment of receipt. The moment of receipt may be difficult to track because the receipt of units by a user is often tracked inside the smart contracts controlling the DeFi protocol and is only visible through a user interface rather than on a public blockchain.
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