If you create and sell NFTs, the IRS treats your activity as a business or self-employment. Primary sales are ordinary income. Royalties on secondary sales are ordinary income. Both are subject to self-employment tax at 15.3% in addition to income tax. The "starving artist" defense does not apply to six-figure mint revenue.

Primary Sales

When you mint and sell an NFT, the proceeds are ordinary income — not capital gains. You created the asset, so there is no capital investment to produce a capital gain. The full sale price (minus any platform fees and minting costs) is taxable income. If you sold NFTs on OpenSea for 10 ETH when ETH was $3,000, you have $30,000 of ordinary income.

Royalties

Secondary sale royalties — the percentage you receive when your NFT is resold — are ordinary income when received. Each royalty payment is a separate income event valued at the fair market value of the crypto received on the date of receipt. Active NFT creators with popular collections can receive dozens of royalty payments daily, each requiring separate valuation and reporting.

Self-Employment Tax

NFT creation activity is a trade or business subject to self-employment tax under §1401. The 15.3% SE tax applies to net self-employment earnings — gross income minus allowable business deductions. This is in addition to federal and state income tax. Many NFT creators are shocked to discover they owe 40%+ in combined taxes on their NFT income.

Deductions

NFT creators can deduct ordinary and necessary business expenses: platform fees, gas costs, software subscriptions, marketing expenses, equipment, and home office costs (if applicable). These deductions reduce both income tax and self-employment tax. Proper documentation and consistent tracking are essential.

Getting Right with the IRS

The NFT boom created enormous income for creators who often had no tax planning infrastructure in place. If you have unreported NFT income, unfiled returns, or an IRS notice related to NFT activity, Attorney Darrin T. Mish handles the full resolution process. Thirty-two years of IRS practice. Free consultation.