With the NFT marketplace exploding in the past several months, everyone is looking to join in the action and make some serious cash. However, the cryptocurrency-tied industry of selling and trading digital assets is more than just creating photos and videos for quick cash. Even as a decentralized and illiquid market, there are still rules and technicalities people must know.
Although it’s relatively easy to start a cryptocurrency account needed to pay for and receive payments from NFT transactions, ensuring growth and making the most of your transactions are entirely different matters. If you want to have a productive trading experience, check out these top tips for profiting from your NFT purchases.
Invest in CRTs
Given that you’re already in the NFT space, buying and selling assets and turning cashing in large amounts of cash. To maximize your profits, you have to always plan ahead. This means securing a part of your funds and using it to reduce NFT taxes. An increasingly popular technique of achieving it involves setting up a charitable remainder trust, or a CRT.
CRTs are tax-exempted and irrevocable trust funds intended to reduce your taxable income. As a donor, you can transfer your assets or cash into the fund and in return, you receive an income stream from this fund for a certain period (or for life). The remaining portion, or the remainder, goes to a charitable institution of your choice by the end of the term. Basically, you donate assets to the fund and it provides you with an income, usually every year. This has become the best option for you to reduce the taxable income you need to declare and the taxes on any gains from the assets in the trust–for such as selling NFTs that have increased in value–can be deferred.
Of course, as the law starts to catch up with this technology, taxation will become an inevitable part of making profits from NFT. The Internal Revenue Service (IRS) considers cryptocurrencies as properties similar to stocks. They’re now gearing up for a lockdown, which is also why you’ve probably heard about NFT investors owing billions in taxes. With CRTs, you’ll have less to pay in taxes, which means more for you for the foreseeable future.
Learn When to Hold
When cryptocurrencies start dipping one after the other, it might feel like a sinking ship especially to non-experienced investors. This could lead to panic selling of cryptocurrencies and non-fungible tokens (NFT). Unless this is driven by solid information, you’d better hold on to your digital assets to avoid losing value from your portfolio. Like their real-world counterparts, the stock market, dips among cryptocurrencies are usually caused by a variety of factors. It can range from mere speculation about this decentralized economy driving buying and selling decisions, to something as regular as the end-of-year profit-taking.
Learning when to hold and when to sell is a critical skill not just in trading stocks but also with cryptocurrencies. It’s like understanding whether you can still weather the storm or if it’s time to cut your losses. The same goes for NFT since it’s transacted through cryptocurrency. Since the future of NFTs, in general, remain uncertain, it might be wiser to hold and sell for short-term plans only. Better yet, you might want to…
Start flipping NFTs
Flipping is a term that refers to buying something with the intent to sell it immediately at an inflated price. This applies to real estate, stocks, and even collectibles. In the context of NFTs, this means purchasing an asset with the intent of selling it soon enough. This accelerates your profit but it will require a well-thought-out strategy and lots of research.
You have to know which NFTs are promising, although relying on this alone can be quite shaky. No one probably thought that the Ghozali Everyday–an Indonesian student’s four-year effort to take daily selfies and minted into an NFT as a joke–would blow up into a multimillion-dollar franchise virtually overnight. Supporters of the NFT claim that more than the asset, these tokens are “pieces of history” and as such, their value can never be accurately forecasted.
If you’re looking to aggressively generate wealth from flipping NFTs, you might want to consider looking back to the first tip: CRT. Imagine one of the NFTs in your possession has sold for an increased value. If it’s in a charitable remainder trust, the taxes you would otherwise have to pay for the sale will be deferred. This means that you get to keep the entire profit or reinvest it in other tokens you can potentially flip sometime in the future.
As the law catches up with the sale and trading of digital assets, you have to prepare yourself and make sure you make the most out of existing programs and statutes. By making the right preparations such as setting up a trust fund or doing your research, you can definitely make the most out of every token you have. Furthermore, by reducing the taxes you have to pay, you get to keep more of your income and accelerate your wealth-building.