NFTs Can Create Tax Headaches

Financial planner urges NFT enthusiasts to carefully evaluate tax ramifications

ATLANTA, April 27, 2022 /PRNewswire/ -- Artists and investors alike should know that NFTs can complicate their taxes, says Certified Financial Planner™ Thomas Walsh.

Walsh, a senior client service manager for Palisades Hudson Financial Group LLC, wants to be sure that individuals dealing in nonfungible tokens understand that the Internal Revenue Service is taking an interest in the relatively new phenomenon. This interest could open NFT enthusiasts to scrutiny from the tax authorities. In an article for the firm's newsletter (available online at https://www.palisadeshudson.com/2021/11/the-tax-consequences-of-nfts/), Walsh suggests that – from a tax perspective – NFTs have a lot in common with both cryptocurrencies and traditional collectibles.

"NFTs are new enough that tax authorities have issued little guidance," Walsh says. "Taxpayers who buy or sell NFTs should take care to handle related tax concerns carefully."

The tax treatment of NFTs can grow even more complex for those who hope to earn income from an individual token, not only by selling it for a profit but potentially by "fractionalizing" it. Artists, too, may face complicated tax questions depending on how a particular NFT they created is structured.

Walsh cautions, "The tax considerations for a business enterprise involving NFTs can become highly complex." Such considerations may involve determining whether and how to classify NFTs as business assets or applying rules related to self-created works. He suggests that "It is best to consult a tax professional who can help you to meet your reporting obligations fully and accurately."

Demand for NFTs continues to grow. Buyers and sellers should be aware that the IRS will demand its share of this growing market. In the absence of clear regulatory guidance, taxpayers should take extra care and consider leaning on professional advice to ensure they meet their tax obligations.

Thomas Walsh is based in Palisades Hudson's Atlanta office, and has been with the firm since 2011. In addition to financial planning, asset management and tax preparation, he serves as a member of the firm's Entertainment and Sports team. Walsh contributed to Palisades Hudson's books "The High Achiever's Guide to Wealth" and "Looking Ahead: Life, Family, Wealth and Business After 55" (both available on Amazon). His advice has appeared in publications including U.S. News & World Report, The Pittsburgh Post-Gazette and Investor's Business Daily.

Contact: Amy Laburda, amy@palisadeshudson.com

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SOURCE Palisades Hudson Financial Group LLC