A pseudonymous NFT artist known as “Song” has gone viral after disclosing a $127,000 tax bill on NFT sales that only generated $90,000 in actual income. The case highlights a little-understood aspect of crypto taxation: the IRS treats each NFT mint and secondary sale as a taxable event, creating potential tax liabilities that exceed actual earnings. Song’s predicament occurred because they minted hundreds of NFTs that initially sold for high ETH values (since depreciated), creating paper gains taxed at 2022’s peak prices.
Tax experts explain this stems from how the IRS classifies cryptocurrency transactions. “Every time an NFT changes hands or is created, it’s a taxable event based on ETH’s dollar value at that exact moment,” explains crypto CPA Laura Walter. The issue compounds when artists receive royalties in crypto that later loses value before conversion to fiat. Song’s case shows creators might owe taxes on theoretical gains that never materialized as spendable income.
The situation has sparked calls for clearer NFT tax guidance from the IRS. Proposed solutions include allowing artists to aggregate annual NFT income rather than itemizing each transaction, or implementing loss-harvesting mechanisms similar to traditional securities. Until then, tax professionals urge NFT creators to: 1) Maintain meticulous transaction records 2) Set aside 30-40% of crypto earnings for taxes 3) Consult crypto-savvy accountants before tax season. As Song’s story demonstrates, the decentralized art world carries very real centralized tax consequences.
