You must include your earnings from cryptocurrency games in your tax return if you played. Cryptocurrency games have gained more users and media interest in recent years. Unfortunately, many investors are still unsure of the tax implications of these games.
We’ll cover everything you need to know about cryptocurrency game taxes in this guide. We’ll break down the tax ramifications of the most common transactions in crypto games and explain why tax reporting for these games can quickly become complex.
Crypto Game
In-game purchases are available in a lot of well-known games. However, centralized gaming developers usually end up with benefits from these purchases. For instance, Epic Games receives 100% of the revenue from Fortnite skin sales.
Play-to-earn or P2E games, which are different from cryptocurrency games, allow players the chance to earn money.
In-game currencies are available in centralized games like World of Warcraft and Fortnite, but they are difficult to convert into other resources outside of the game. You can check the Gaming Crypto Coins!
Paying Taxes on Crypto Games
Yes. The IRS classifies cryptocurrency as a type of property, making it taxable for both income and capital gains. The same regulations apply to crypto earned through play-to-earn games.
You will calculate your ordinary income based on the fair market value of your tokens at the moment you get them if you earn cryptocurrency in a game.
You will experience a capital gain or loss when you sell cryptocurrency you earned from gaming, depending on how much the value of your tokens has increased or decreased since you first obtained them.
Taxation on Earning Cryptocurrency Rewards
When you earn cryptocurrency in a crypto game, you’ll likely be taxed on it according to its fair market value at the time you won.
Depending on how your tokens’ value has changed, you can make a capital gain or loss if you decide to sell your cryptocurrencies in the future.
How are NFTs in-game taxed?
Using cryptocurrency to pay for an NFT or in-game asset is considered a crypto-to-crypto trade and a taxable event. Depending on how much your asset’s price changed when you first acquired it, you may have a capital gain.
An in-game NFT exchange for cryptocurrency is regarded as a taxable event as well. Your capital gain or loss will depend on how much your asset’s price has changed since you first acquired it.
Why Is It So Challenging to Report Earnings From Cryptocurrency Games?
Even while games involving cryptocurrency are becoming more and more popular, reporting taxes for them is exceedingly challenging. Here are some of the common tax problems that investors encounter.
Uncertain tax regulations
The IRS has not yet published any regulations about cryptocurrency gaming. As a result, there is some ambiguity regarding the taxation of these games.
According to the majority of tax experts, earning income from gaming will always be treated as an income event, unlike earning money from a centralized game like World of Warcraft. The IRS has yet to explain this matter.
No Tax Records
Unfortunately, a lot of cryptocurrency games do not currently provide consumers with tax reports or a history of their transactions. This implies that it is the taxpayers’ responsibility to maintain accurate records of their transactions.
Taxpayers must retain a record of when they obtained their bitcoin because it is taxed based on its fair market value at the moment it was received.
Crypto players required to sell their holdings
Some crypto players have a large portion of their net worth invested in digital currency. They might be forced to sell off a large percentage of their assets to pay their taxes. We advise tax planning before the end of the tax year to prevent this situation. To prepare and set aside the funds necessary to pay your tax obligation, you can determine your tax liability.
Conclusion
It is not surprising that there is still a long way to go for crypto laws, so until these laws can address gaming transactions specifically using crypto, you should still follow the current crypto tax regulations even if you don’t think they are fair. Get the Best Play to Earn Crypto Games!
