As the world of Web3 and NFTs continues to gain popularity, more and more people are looking to get involved in the space, many as artists. It is no secret that the world of NFTs has been booming. In the past year alone, the market for NFTs has exploded, with prices skyrocketing and new platforms and artists popping up left and right.
The rush may have slowed a little during recent months, but the consensus remains that this emerging space is still the future of communication, commerce, creativity and much more.
During two recent episodes of my show, NFTs BEYOND THE FLOOR, we have found ourselves drawn toward the conversation of financial education for creators – particularly on the topics of cryptocurrency volatility and tax.
During my discussion with Blair Breitenstein, creator of 1989 Sisters, I asked what she would go back and warn herself of in Web3, given a time machine?
“It is really different to sell your art in such a volatile market, the ups and downs of ETH dipping and the value of my art in November versus now is something I didn’t understand.”
“I think it’s important to note before launching a collection that it extremely volatile space with high highs and low lows. There are so many components related to the value of your artwork – not whether it’s good or not or if you’re working hard enough!”
“Education in taxes is essential – there are some people who have now made a lot of money for the first time. The value of the currency is less now than it was then, but the money you owe back is fixed and there is a lot that you need to learn before collecting, selling and creating – this is super important!”
Thinking long term.
Those who create a large PFP type collection vs those who create 1/1s need to think a little differently. There are some really clever ideas that will appear ‘marketable’ to your community – but always consider the tax implications of what you are doing at the moment of the transaction.
Last week, in a conversation with Maurice from the project Starcatchers, he pointed out the ‘Time Lock Contract’ that he adopted as an industry first. Writing a contract that locked 35% of the project funds to be released between 12 & 48 months, and so ensuring the team’s long-term commitment.
This was a terrific mechanic to help build trust in his community, but at what cost was it realised? Given the price of Ethereum has halved during the first year, but the tax will likely need to be paid on the value at the point of transaction – not being able to convert it to a stable coin, could be seen as a real oversight.
Maurice commented: “We’re talking to the accounting team right now and this is all new territory in the eyes of the government etc… I’m not the best person to talk to about this. However, I really believe in crypto – I think we will rise up again and this will take time.
Tips to consider!
If you, like me, are excited to push the button and start contributing in the Web3 Space, here are some basic tips that I really think you should consider in advance.
- You need to understand the basics of cryptocurrency taxation in your region. Depending on where you live, you may be required to pay taxes on any profits you earn from selling your NFTs. It is important to consult with a tax professional in order to ensure that you are properly declaring your income and paying your taxes.
- In addition to taxes, it is also important to have a solid understanding of cryptocurrency investing. If you plan on holding onto your payment as an investment, you need to be aware of the risks involved. Cryptocurrencies are notoriously volatile, so it is important to do your research and understand what you are getting yourself into.
- Finally, it is also important to have a basic understanding of accounting principles. This will come in handy when it comes time to file your taxes as well as when keeping track of your finances in general. There are a variety of online courses and resources available that can help you get up to speed on the basics of accounting.
The truth is, if you're considering making the jump from traditional art to the world of NFTs, there is A LOT of confusion out there regarding the financial and tax implications.
Financial & tax law is always changing and varies from country to country. Working with a qualified financial professional to ensure that you stay up to date on all relevant laws and regulations is highly recommended.
Financial education will be an important part of becoming a successful NFT artist as governments and banks get to grips with this new decentralised method of generating income. Making the jump from traditional art to NFTs can be a great way to earn extra income—but it's important to be aware of the financial & tax implications of doing so.