NFT Accounting and Taxation

Specialized accounting and tax services for NFT traders and creators

What are NFTs?

NFTs are Non-Fungible Tokens related to art, are a type of digital asset that represents ownership or provenance of a specific piece of digital or physical artwork using blockchain technology and smart contracts.

Accounting and taxation for buying and Selling NFTs

Profits or losses from selling NFT can be treated in in two ways.
Silver coin with NFT carved on it

Capital Gains/Loss

The proceeds can be considered Capital Gains and loss which means 50% of the capital gain is included in your taxable income, and it is taxed at your applicable marginal tax rate. This means that only half of the capital gain is subject to tax, which can result in a lower effective tax rate.

3D human head made from cubes

Business Income

The proceeds can be considered business income which means 100% of the capital gain is included in your taxable income, and it is taxed at your applicable marginal tax rate. When the income is classified as business the taxpayer may be able to write off any expmese incurred that help maintain the business.

Notepad on desk with laptop

Factors that are considered when determining if NFT trading is considered business income or Capital gain/losses:

NFT accounting and taxation for NFT Creators and Artists

Creators and artists of NFT’s are considered to be carrying out an “adventure in nature” for the purpose of generating income. According to this assumption, all proceeds are categorized as business income and subject to taxation at business income rates.

Business Structure

Evaluate the pros and cons of operating as a corporation or sole proprietor.

Token Valuation

Assess the value of tokens received in exchange for NFT sales accurately.

Token Value Fluctuation

Stay mindful of the fluctuating values of tokens and their impact on financial outcomes.

Expense Management

Identify and appropriately claim expenses related to NFT sales to optimize tax liabilities

Record-Keeping

Maintain meticulous records to ensure transparency and compliance with tax regulations.

Tax Planning

Implement strategic tax planning to maximize benefits and minimize liabilities.

How are NFT Gains and Losses Calculated?

Calculating gains and losses on NFTs involves comparing sale proceeds to the cost basis:

Glasses Calculator Tablet on white neat desk

Cost Basis:

* Purchase Price: Amount paid for the NFT, including the cryptocurrency purchase price and any related transaction fees.
* Transaction Fees:Additional fees during purchase, such as platform fees or blockchain transaction costs, are added to the cost basis.

Sale Proceeds

* Selling Price: Amount received upon NFT sale in the relevant cryptocurrency.
* Transaction Fees: Subtract any sale-related transaction fees from the selling price.

Calculate Gain or Loss:

* Gain: Sale proceeds exceeding the cost basis result in a capital gain.
* Loss: Sale proceeds lower than the cost basis lead to a capital loss.

Glasses Calculator Tablet on white neat desk

How can TMP assist with NFT calculations?

Activity Classification

Precisely classify NFT activities for accurate accounting.

Information Gathering

Streamline data collection for precise gain/loss calculations.

Calculation Execution

Meticulously execute calculations for accurate assessment of gains and losses.

Results Integration

Seamlessly integrate calculated results into financial statements for a clear overview.

Tax Planning Strategies

Develop tailored tax plans to optimize NFT-related financial outcomes.

Representation with Tax Authorities

Rely on our expertise for effective representation, ensuring compliance support.

Why Us

Financial Education

We prioritize educating our clients, equipping them with the knowledge to make sound financial decisions for their future success.

Seasoned Experts

Our experienced team offers deep expertise, ensuring reliable and comprehensive solutions for all accounting and tax needs.​

Personalized Solutions

Tailoring our services to each client's unique circumstances, we deliver customized solutions that address specific goals and challenges effectively.​

Modern Approach

Embracing cutting-edge technologies and innovative methods, we provide efficient and forward-thinking accounting and tax services to meet the demands of today's business landscape.​

FAQ

  • Crypto trades in CSV format from each centralized exchange
  • Summary timeline of trades and holdings
  • API key of all available exchanges
  • Wallet addresses of holdings and Defi trading wallets
  • Summary of which Blockchains you traded under
  • Open Sea Accounts for NFT holdings
  • Any other related activity such as (Staking, Yield Farming, air Drops and other)
  • OpenSea Account History

Yes, any costs associated with generating income for your NFT business can be deductible.

There is no clear guidance on this from the CRA, TMP is working closely with CRA to determine their position on this matter.

Hold NFTs Long-Term:

  • Opt for long-term holdings to benefit from lower capital gains tax rates.

Offset Gains with Losses:

  • Sell underperforming assets to offset gains and reduce overall tax liability.

Understand NFT Valuation:

  • Consistently determine fair market value to accurately report gains.

Consider Professional Advice

  • Consult a tax professional for personalized guidance based on your situation.

 

Incorporating for tax efficiency in NFT activities involves weighing benefits and considerations. It could potentially offer tax savings through:

  • a clear separation of personal and business expenses.
  • Lower tax rates for Active income
  • Retained earnings
  • Potential tax planning advantages

To support the valuation of your NFTs for tax purposes, maintain:

  • Purchase Records: Date, price, and fees.
  • Blockchain Transactions: Verify ownership and trace history.
  • Costs of Acquisition:Transaction and associated fees.
  • Wallet Addresses: Record associated wallet addresses.
  • Marketplace History: Transaction details from platforms.
  • Comparable Sales Data: Market value of similar NFTs.
  • Documentation of Ownership Changes: Records of transfers.
  • Fair Market Value Determination: Factors considered for valuation.
  • Timestamped Screenshots: Captured market prices and transaction details.
  • Communication Records: Agreements or discussions regarding NFT value.
  • Define Ownership: Clearly outline ownership percentages and responsibilities in a formal agreement.
  • Document Contributions: Detail each collaborator’s contributions to establish fair revenue sharing.
  • Create a Legal Agreement: Formally document terms, including ownership, revenue distribution, and costs.
  • Determine Costs:Identify and share NFT minting and sale costs based on the agreed ownership percentages.
  • Revenue Recognition:Clearly outline how revenue will be recognized and distributed in accordance with the agreement.
  • Accounting Entries:Record transactions with journal entries reflecting contributions, costs, and revenue distribution.
  • Consider Tax Implications: Understand and address tax implications based on collaboration structure and jurisdiction.
  • Maintain Communication: Keep open communication with collaborators and update financial records regularly.
  • Document Changes: Record any changes to the agreement or ownership structure promptly.

Yes, they are reported as business income if you are considered a NFT artist or creator.

Yes, if it is directly related to the growth and development of your NFT business.

For NFT Investors earning token or air- drops, rewards earned may be taxable in Canada if the coins received have market value. The rewards are taxable once in your possession and you are able to trade or sell them.

Maintaining distinct records for personal and commercial NFT transactions is crucial for clarity, accurate tax reporting, and compliance. It enables precise tracking of costs, income, and expenses, supports decision-making, and facilitates efficient asset management.

How much does TMP charge for NFT Calculations?

Basic

Upto 50 NFT trades, upto 3 centralized exchanges, upto 2 blockchains on Defi, Upto 100 Crypto trades, minimal Staking or Yield farming.

$1,500

Expert

Upto 300 NFT trades, upto 5 centralized exchanges, upto 2 blockchains on Defi, Upto 1000 Crypto trades, upto 500 Staking or Yield farming transactions.

$3,500

Premium

Upto 1,000 NFT trades, upto 8 centralized exchanges, upto 5 blockchains on Defi, Upto 3,000 Crypto trades, upto 1,000 Staking or Yield farming transactions

$5,500

Custom

Fill in this questionnaire and we’ll get back to you with a quote.

Next Steps

Step 1

Please fill in this questionnaire

Step 2

Schedule a consultation with one of our CPAs to receive a final quote and a checklist of the required data

Step 3

Upload requested data onto cloud folder shared

Let’s collaborate!

Have a question, an idea, or just want to learn more about Triple M Professional Corp.? We’re all ears. Fill out the form or Email us and we’ll connect with you soon.

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416-333-1116
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Markham Office
905-237-6424
675 Cochrane Dr East Tower 6th Floor, Markham, ON, L3R 0B6
Toronto Bay Street Office
416-333-1116
401 Bay Street, 16th Floor Toronto, ON, M5H 2Y4
San Francisco Office
415-366-5667
590 California Street 16th Floor, San Francisco, CA 94104
New York Office
212-651-9101
555 Madison Ave 5th Floor Manhattan,
NY 10022
Toronto King Street West Office
416-333-1116
100 King Street West, Suite 5600, Toronto, ON, M5X 1C9