IRS Adds NFTs in Tax Guidance Draft
The Internal Revenue Service tweaked its annual tax instructions to account for non-fungible tokens (NFTs), replacing the term "virtual currency" with «digital assets,» which includes NFTs.
The move comes as cryptocurrency regulations develop around the world, and some aspects of the market, such as NFTs, are tougher to categorize than others. The rise of NFTs in 2021, which can be hard to regulate. led governments and financial agencies to turn their attention to them,
The IRS has altered the wording of its tax guidance in recent years to account for the crypto market class as crypto investors wonder about how to record taxation for their NFTs.
The updated draft for Form 1040 also explicitly references NFTs.The guidance for cryptocurrencies says that if a particular asset has the characteristics of a digital asset, it will be treated as such for federal income tax purposes.
NFTs have lost some of their popularity this year.Still, many companies and brands are still entering the space.
The IRS last year began enforcing more stringent rules on cryptocurrency taxes and released more explicit rules. The 2022 tax guidance mandates payments in scenarios that include receiving digital assets as a payment or as a reward, through mining or staking, through a hard fork, selling them, and transferring them as gifts.
The IRS has been working on crypto tax guidance since 2014 to make it more clear for taxpayers.The latest developments indicate that the agency is becoming more familiar with the crypto market and its terminology.
NFTs, mining, staking, hard forks, and other aspects of the technology have been accounted for in IRS guidance, which suggests increased knowledge of the industry's subtleties at the federal tax service.
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