IRS announces key changes for NFTs in latest tax guidelines

The United States Internal Revenue Service (IRS) has released an updated draft of the 2022 tax form which has provided clarity regarding the guidelines for taxes pertaining to the crypto industry, more particularly for NFTs.

Similar tax for NFTs, crypto, and Stablecoins

One of the major changes that have been made is the alteration of language covering taxes for crypto. The word “virtual currency” has been replaced with “digital assets.” 

This effectively brings NFTs under the same umbrella as cryptocurrencies and stablecoins, subjecting a similar tax on digital art. 

As per the draft, “Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology.” 

“For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins” the draft further read.

To this end, IRS’s 1040 tax form for 2022 will feature a separate section where taxpayers will be required to disclose their digital asset holdings. 

Eyeing a piece of the NFT action

This year has seen dozens of big brands foraying into the world of digital art. From fashion to entertainment and even the auto industry, several partnerships have been announced and trademark applications for NFTs have been filed. 

Between January and September 2022, the United States Patent and Trademark Office saw 6366 trademark applications filed for NFTs and blockchain-related goods. 

In contrast, the tally for trademark applications in 2021 was 2142. This massive rise in companies scrambling to secure their spot in the world of NFTs shows the popularity of this industry.

According to a report by Statista, revenue from NFTs is projected to reach $731 million by the end of this year. This figure is expected to grow at an annual rate of 23.88% and reach more than $2 billion by 2027. 

The U.S. currently accounts for the highest revenue from NFTs and it is likely that the taxman wants his share of the money that this exciting new industry is expected to rake in.  

Until now, the IRS’s definition of a virtual currency was basically a digital token “that functions as a unit of account, a store of value, or a medium of exchange.”

According to a study by Coincub, the U.S. currently ranks 56th based on its tax policy for crypto.