USA Crypto & NFT Tax Guide
Updated: 10 hours ago
Tax might not be the first thing that springs to mind when you think of fantasy sports - but it should be, because crypto & NFTs are taxable and the US tax deadline is on the horizon. We’ve teamed up with crypto tax calculator Koinly to help you learn everything you need to know about NFT and crypto taxes in 2023.
The fun you're having with fantasy sports might be accompanied by a nasty tax bill. That’s because your crypto and indeed your NFTs are subject to tax and the IRS is clear that you need to report and file your crypto taxes by April 18, 2023.
No clue how? No worries. We’ve teamed up with crypto tax calculator Koinly to help you learn everything you need to know about US crypto and NFT taxes.
How are crypto and NFTs taxed?
The IRS view crypto as an asset for tax purposes - kind of like a property - and this dictates the tax treatment. It means crypto can be subject to Capital Gains Tax or Income Tax, depending on the transaction.
For NFTs, even though they’re a unique token, from a tax perspective, they are largely treated the same as crypto - although the rates you pay on long-term gains may be different. Let’s break it down.
Crypto & NFT Capital Gains Tax
When you dispose of an asset, you realize a profit or loss, also known as a capital gain or loss.
You can think of a disposal as anytime your crypto changes ownership, including:
Selling crypto or an NFT for fiat currency, i.e. USD, GBP, CAD.
Trading one crypto for another cryptocurrency - including trading crypto for NFTs and vice versa.
Spending crypto on goods or services.
A variety of DeFi transactions where you no longer retain beneficial ownership of your asset or receive a token in exchange for your capital - potentially including liquidity pools.
If you make a profit when you dispose of your crypto, this is a capital gain and you’ll pay Capital Gains Tax on that gain.
How much you’ll pay varies depending on your total annual income, but it pays to hodl in the US. If you dispose of an asset you’ve held less than a year, you’ll pay the short-term Capital Gains Tax rate - which is the same as the Income Tax rate bands - so up to 37%. Meanwhile, if you dispose of an asset you’ve held for more than a year, you’ll pay the much lower long-term Capital Gains Tax rate of up to 20%.
However, long-term gains from NFTs may be taxed at a higher rate than other capital assets under new IRS guidance in March 2023, The guidance states some NFTs may be deemed collectibles, if the underlying asset the NFT represents is determined to be a collectible based on existing guidance under IRC Section 408(m). Under this guidance, collectibles include:
Any work of art,
Any rug or antique,
Any metal or gem (with limited exceptions),
Any stamp or coin (with limited exceptions)
Any alcoholic beverage, or
Any other tangible personal property that the IRS determines is a "collectible" under IRC Section 408(m)
In other words, if you dispose of an NFT you held for more than a year deemed a collectible by the IRS, you’ll pay 28% tax on any gain instead of the maximum 20% you’d pay on other crypto assets.
Of course, not every investment ends in a gain.
If you make a loss, you have a capital loss and although nobody likes it when their investment goes sour, capital losses are good news for your tax bill as you can offset capital losses against capital gains to reduce your overall tax liability.
In the US there is no limit to the number of losses you can offset against gains. In even better news, you can even offset an additional $3,000 a year of capital losses against ordinary income. As well as this, if you’ve got no gains, you can carry forward losses to future tax years!
Need help making the most of your losses? Check out Koinly’s crypto tax loss harvesting guide.
Income Tax on crypto and NFTs
The easiest way to think about when you may pay Income Tax on your crypto is that anytime you’re earning new tokens, you may have additional income. The IRS is harsher than most tax offices when it comes to what activities they consider income. Their guidance states the following activities may be considered income and subject to Income Tax upon receipt:
Getting paid in crypto in exchange for a service.
Airdrops - including an airdrop received as a result of a hard fork.
A variety of DeFi investment activities where you earn new tokens.
Creating and selling NFTs - like an artist.
If you have additional income from crypto, you need to calculate the fair market value of your tokens in USD on the day you received your tokens. You’ll pay Income Tax on this amount.
Some bad, but important, news - even if you’ve already paid Income Tax on your crypto, if you later dispose of your crypto by selling, swapping or spending it, you’ll still be liable for Capital Gains Tax on any gain too!
Is any crypto tax-free?
Yes! Sometimes you won’t pay tax on your crypto assets:
Buying crypto or NFTs with fiat currency, like USD.
Transferring crypto and NFTs between your own wallets - through transfer fees may be a disposal.
HODLing crypto and NFTs.
Gifting or donating crypto.
How to calculate and report your Sorare taxes
Now you know how your crypto and NFTs are taxed, you need to know how to calculate your taxes. Without a crypto tax tool, you need to calculate the different figures you’ll be reporting, so you’ll need to:
Identify each taxable transaction and whether Capital Gains Tax or Income Tax applies.
Calculate your cost basis using an approved cost basis method like Spec ID, FIFO, HIFO and LIFO.
Identify the fair market value in USD of any crypto income on the day you received it.
Calculate each capital gain and loss from every disposal of crypto, including separating short and long-term gains and losses.
Calculate your net capital gain or loss for the financial year and your total income from crypto for the financial year.
You then need to take all these figures and report them to the IRS in your tax return by April 18, 2023 - and the IRS want a lot of information. You’ll need to report every single disposal of crypto throughout the financial year on Form 8949, alongside your net capital gain or loss on Schedule D and any income from crypto on Schedule 1 or C.
For investors with a lot of transactions, this can take hours. This is why we’ve teamed up with crypto tax experts Koinly to help you get your crypto taxes done in a fraction of the time. Here’s how it works:
Sign up to Koinly and connect to Sorare. Koinly connects to Sorare automatically using API to import your transaction history or you can upload a CSV file of your Sorare transaction history
Connect any other wallets, exchanges and blockchains to Koinly. It’s not just your Sorare taxes you need to calculate - Koinly supports more than 700 exchanges, wallets and blockchains, making it easy to connect and do your crypto taxes in no time at all.
Grab a coffee and let Koinly do its stuff. Koinly uses AI to go through your entire crypto transaction history and identify which transactions are taxable and which aren’t. Then it’ll calculate your cost basis, capital gains or losses and the fair market value of any crypto income on the day you received it.
Download your crypto tax report. Switch to a paid Koinly plan to download your crypto tax report, when you need it. Koinly can generate a huge variety of reports for users around the world including the IRS Form 8949 & Schedule D, TurboTax Report, Complete Tax Report and more.
Use your crypto tax report to file your preferred way. Hand your report over to your accountant, upload your crypto tax report to your tax app or file using paper forms. You’re done!
Calculate your crypto taxes fast with Koinly and Sorare. Save 30% on your Koinly tax report with code RARE30.