NFTs are experiencing a gold rush. But be cautious. The Taxman is on the lookout.
According to Chainalysis, many of the NFT market’s transactions are “wash trading,” or NFTs sold to raise prices. 262 people have sold NFTs to another account more than 25 times, according to the data compiled here. Though the 25-transaction threshold doesn’t guarantee that every NFT sold to a self-funded wallet will be used for wash trading, it gives us more confidence, “they add.
Most have lost money, which is surprising. The winners outnumbered the losers by a wide margin. In 2021, wash merchants made a profit of almost $8.5 million, which tax authorities would like to see. In the latter three months of 2021, almost $1.5 million was allegedly spent on NFTs, which is money laundering.
Tax authorities are missing out on large sums of questionable cash that are being funneled through large marketplaces. Additionally, those who are attempting to cover their tracks are becoming increasingly aware of the dangers of doing so. According to the Treasury Department’s announcement earlier this month, it wants the NFT community to report the value of their work on their tax returns.
For those who are so inclined, NFTs are now your oyster. A pixelated monkey’s value, on the other hand, is difficult to calculate.