How NFT Taxes Work

What are NFTs?

NFTs do not just have to be pictures of cute kittens. NFTs can take the form of artwork, domain names, music, and even videogame add-ons. All of these are considered digital assets. Once an NFT is created (minted), it is given an ID which brands it as completely different from other NFTs. If two NFTs look similar, they can be identified as separate creations based on their IDs.



An NFT’s ID includes metadata on its transaction history. Specifically, who minted it, who owned it, and what it’s been sold for. Because of this, NFTs are taxable.

When do you pay NFT taxes?

Profits from trading NFTs are taxable in three cases:

• Buying
• Selling
• Trading

Each of these transactions impact your tax liability. Because the only way to purchase NFTs is through cryptocurrencies, you will be subject to a capital gains tax. Ethereum, which is the most popular method of buying and selling NFTs, can rise in value after you purchase it from an exchange, but BEFORE you use it to buy an NFT. In such a situation, you are subject to capital gains tax.

To learn more about how crypto is taxed, read our guide.

Alternatively, you can speak with a tax professional to determine the various ways that you can expect your crypto portfolio to be taxed.

When it comes to selling and trading the NFTs themselves, NFT taxes take on a different form.

NFT Taxes for Investors

The IRS has not provided any guidance on how it plans to tax NFTs specifically. This makes many assume that these tokens will not be subject to tax. This assumption is false, as NFTs technically fall under the “collectible” tax classification. This means that any NFT sold or traded on the OpenSea or other NFT trading platforms will be considered by the IRS as a unique work of art, comparable to anything which can be bought at a traditional art auction. This is particularly important because NFT gains can be subject to a slightly higher tax rate than regular cryptocurrencies.

How are collectibles taxed?

Collectibles are taxed when they are sold. The maximum tax rate for collectibles held for under one year is 28%, which is considerably higher than the average capital gains tax which investors pay for non-collectible investments. For long-term capital gains, for example, the tax rate is 0-20% depending on your income bracket.

It may shock you to learn that, if you buy and sell an NFT in less than a year, your short-term capital gains tax skyrockets to 37-50%. Yes, up to half of your earnings can be taken away by NFT taxes. To get around this, it’s crucial to speak with a professional before doing anything. Our Yoke Tax professionals are focused on minimizing your tax losses while maximizing your earnings retention. Connect with us for a free consultation.

NFT Taxes for Artists

Creating an NFT in itself isn’t actually a taxable event. When you sell your NFT, however, you will have to pay taxes on the profits which you made. The profits from selling NFTs are considered income, which means that they will be taxed at your regular income rate.

For example, if you spend $100 worth of Ethereum to create an NFT, and sell it for $500 Ethereum, then your profit is $400. This is taxable income. However, do not forget that this NFT income is subject to self-employment taxes! You may want to connect with a tax professional before selling your creation.

Final Considerations

Generally, NFTs are treated differently based on who is buying and selling it. For artists, we can see a very simple tax guideline which follows self-employment taxes. For investors, NFT taxes get messy depending on how much the NFT is bought for and how long it is held. This is because NFTs are taxed as collectibles.

However, NFT taxes don’t have to be complicated, and they certainly don’t have to take most of your earnings. Connect with a Yoke Tax professional to iron out what can be done to maximize your earnings retention. Don’t stress- let us handle the numbers.