As the end of the year approaches, NFT traders are finally finding a use for the useless tokens in their wallets. That means selling tokens for pennies to offset capital gains against taxes. And with the IRS’ criminal investigation division reportedly taking a special interest in cryptocurrency cases, there may be a better time than ever to offload your junk tokens.
Known as tax loss harvesting, this strategy helps traders who are lucky on some investments and unlucky on others minimize their tax liability, ultimately saving money. But with so many lifeless or abandoned NFT projects, who will buy useless NFTs?
Join projects like Harvest.Art, Unsellable NFT, and Sol Incinerator, which aim to buy worthless NFTs to help traders collect tax losses.
“People like to procrastinate, so most volumes start around December 26th and peak until midnight on New Year’s Day,” said NetDragon, Harvest’s co-founder and pseudonymous developer.
Skyler Hallgren, Director of Partnerships at Unsellable, pointed out that NFTs are many individuals’ first foray into investing, so they may not be aware of strategies such as tax loss harvesting.
“Many people are not as savvy as traditional investors when it comes to year-end tax planning. Most traditional investors are strategic about capturing tax losses and finding ways to reduce their tax burden. Most Web3 users are not from that world.” Hallgren said.
Why buy useless NFTs?
Each competing service has a slightly different business model to attract customers.
Unsellable pays one penny for each NFT, but charges a service fee of .002 eth (about $4.60 at current exchange rates) for each NFT offloaded. Excluding gas fees, the maximum is .08 eth per transaction (approximately $184.21). Users can sell up to 500 NFTs per transaction from multiple collections at once.
“Most users are not looking to make other speculative cryptocurrency investments, but are looking for a really simple, no-nonsense year-end tax strategy,” Hallgren said.
In contrast, Harvest pays 1gwei (1 billionth of ETH) for each NFT sold through its platform and charges no upfront service fees. Harvest will also offer one “bidding ticket” for each NFT sold, allowing users to bid on any of the more than 110,000 NFTs Harvest has in stock.
Harvest hopes to leverage the cyclical nature of the NFT market to profit rather than relying on upfront fees. For example, a Web3 game called KOKODI took so long to release that many users lost hope and offloaded their NFTs through Harvest. “When we finally announced the release of the game, we had over 150 of these NFTs and the floor soared up to 0.1 ETH per piece. Without knowing much about this, Harvest users independently started auctioning off most of the KOKODI and Assets have started cycling. They are coming back into circulation,” NetDragon said.
The total cost of offloading an NFT can vary. For example, a recent sale of 459 NFTs through Harvest cost about $300 in gas. This does not include the gas cost of authorizing each collection transfer. The cost of selling 80 recent NFTs through Unsellable is approximately $630, excluding Unsellable’s cap service fee and gas fee, not including the gas cost of authorizing the transfer of each collection.
“Midway through the year, we analyzed about 900 users and realized that the average user was losing $4,200,” Hallgren said. “We feel highly confident that there are hundreds of millions of dollars of unrealized losses that are now frozen.”
Both Unsellable and Harvest operate on the Ethereum blockchain, with Harvest also supporting certain layer 2 networks. While Solana provides services on Sol Incinerator, several other chains, including the increasingly popular Bitcoin Ordinals protocol, appear to lack similar services.
IRS investigates cryptocurrency tax evasion
It may be a better time than ever for cryptocurrency traders to consider their tax bills. According to a report by Bloomberg, the Internal Revenue Service’s (IRS) criminal investigation division has begun to take a closer look at cryptocurrency tax evasion, with most cases involving money laundering just a few years ago.
According to a recent Internal Revenue Service (IRS) report, investigations are being conducted for failing to report income received in the form of cryptocurrency, such as capital gains from cryptocurrency trading, income from cryptocurrency mining, and wages and rental income. , and gambling winnings.” The investigative unit is also looking into whether individuals are failing to disclose their cryptocurrency ownership to protect it from taxes.
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