It’s no secret that NFTs, or non-fungible tokens, have exploded in popularity over the past year or so. Seeing “NFT” appear on your social media timeline is becoming increasingly common yet not everyone has a solid understanding of what they are and how they are beneficial. Rest assured that our accountant for cryptocurrency can help you understand this emerging market and the tax implications surrounding NFTs.

In short, NFTs are tokens that are generated through blockchain technology to tie the non-fungible token with a non-replaceable digital asset. Each token represents a unique part of the blockchain and can be used to digitize both data and assets.

Defining Fungibility

If you’ve never heard of fungibility before, it refers to either an asset or good that can be exchanged for other similar assets or goods. If an asset is fungible, it means it has a simple means of trade or exchange due to its fungible nature; it implies that the assets are of equal value.

The best way to understand fungibility is through an example. Let’s say you’re borrowing a $20 bill from a friend. It would be fine to pay the person back with a different $20 bill or even make the payment in two $10 bills because the USD is the same value. However, if you’re lent a piece of art that is unique and you want to repay the person with a different piece from a different artist, these two values are unique. One artist’s piece could be worth significantly more than the other. 

Non-Fungible Tokens vs. Fungible Tokens

From a cryptocurrency perspective, your BTC or ETH holds the same value as someone else’s BTC or ETH as the market is already established. Even though an individual or entity previously owned the token or mined token, this is irrelevant. However, NFTs are not the same as they are rare and one of a kind. This means that the owner of the NFT certifies the authenticity of the token permanently. 

Taxing Non-Fungible Tokens

As you might know, cryptocurrencies such as Bitcoin and Ethereum are treated as property when it comes to tax purposes. This classification is also used for non-fungible tokens, something that your accountant for cryptocurrency should know. 

NFT sales are less common than Bitcoin or Ethereum but generally have similar tax treatments. NFTs however come with more baggage such as what to do with royalties, what to do with royalty fees, how to handle mints, and so on. Make sure you find an accountant who understands all these nuances.

Need More Guidance? Our Accountants for Cryptocurrency Can Help

At Founder’s CPA, we have been assisting with crypto tax returns for years. With countless transactions on the blockchain reconciled during our experience, you can feel confident that we can assist you with your cryptocurrency and NFT needs. For a free consultation, please get in touch with us today

Curt Mastio
Post by Curt Mastio
November 22, 2023
Curt Mastio started Founder’s CPA in 2017 and currently serves as the Managing Partner of the firm. After obtaining both his Bachelor’s and Master’s degrees in accounting from the University of Illinois in Urbana-Champaign Curt started his career in Big Four public accounting. Shortly thereafter Curt served as the Chief Financial Officer of Storage Squad began his stint as an Adjunct Instructor at Northwestern University’s Farley Center for Entrepreneurship and has been teaching Accounting & Finance to undergraduate students for 6+ years. In his current role Curt oversees strategy, operations, and business development at Founder’s CPA. Further, Curt has experience working directly with 200+ startups and small businesses providing accounting, tax, and outsourced CFO services. His industry expertise lies in the SaaS, Blockchain, Marketplace, and Fintech industries. He has served as a key advisor working directly with startups that range from pre-revenue to companies generating over $30 million dollars a year in revenue. Lastly, he serves a key role working directly with the firm’s clients that have collectively raised over $200 million in venture capital funding to date. Curt is also an active advisor, mentor, and investor in the startup ecosystem. He has facilitated numerous workshops, webinars, and presentations to incubators and other startup-centric organizations. He is also an active mentor for Techstars in both Chicago and Iowa. Outside of his daily professional duties Curt is actively involved with Beat the Streets Chicago and was a founding member of its Young Professionals Board. His efforts in both leadership and community involvement were recognized when he was awarded the Illinois CPA Society’s Outstanding Young Professional Leadership Award in 2020. He was also a panelist at their annual conference in 2022 where he spoke about his experiences starting and operating a public accounting firm. He maintains an active Certified Public Accountant designation that he obtained in 2014. Outside of work, Curt can be found spending time with his friends & family including his dog Rufus. His hobbies include golf, boating, cooking, reading, and attending sporting events & concerts.