Tax loss harvesting is a technique used by professional investors, wealth managers, and trading firms to offset their profits by locking in losses on assets that are currently worth less than what they originally paid. Because your tax bill is calculated based on how much money you’ve made, you can lower your tax bill by realizing losses (basically, selling NFTs that you know are currently worth less than what you paid). With liquid assets like stocks, locking in these losses is easy – just hit the red button and sell. But because NFTs are highly illiquid (there’s often nobody to buy your NFT after the hype dies down), it’s difficult or impossible to formally realize losses. If you don’t sell, you don’t realize losses, and you’re stuck with a higher tax bill.

Tax loss harvesting is a very common practice. Here are some examples of reputable organizations discussing the merits of tax loss harvesting: Bank of America, Fidelity, Chase. Wealth management companies like Betterment even promote Tax Loss Harvesting as one of their features for consumers. As always, check with your accountant if you are unsure.

Yes, because profits or losses are only realized once a sell transaction occurs. If no transaction occurs, you are technically sitting on an “unrealized” gain or loss. Unrealized profits or losses in the US do not count towards your year-end tax bill. So, if you want to officially decrease your tax bill using an NFT you know is in loss, you need to lock in that loss by actually selling it. Again, this can be difficult, because NFTs in loss often have no buyers at any given moment. NFT Tax Saver helps provide liquidity for any NFT you want to get rid of by making it possible to sell any NFT to us.

To allow NFT Tax Saver to buy your NFT, you need to give it permission to interact with your NFTs first. This approval is done at a contract level, which means you need to approve a separate transaction for each NFT collection. So if you are trying to sell 2 NFTs from the same collection, that would only require 1 approval transaction. But if you are trying to sell 1 NFT from Collection A and 1 NFT from Collection B, that will require 2 separate approval transactions.

After all necessary approval transactions are complete, there is 1 final transaction which confirms the sale itself.

We’ve already done a ton of optimization work engineering-wise to decrease the gas costs as much as possible. When we buy your NFTs, we are ultimately invoking the “Transfer” function contained within the contract of each NFT you sell. Therefore, we are at the mercy of the gas costs associated with the “Transfer” functions of all your NFT collections, combined. There is nothing we can do about this.

One silver lining, however – many accountants say it is ok to consider gas costs as part of your cost-basis, which means your gas costs spent on transactions can actually decrease your tax bill too.

One day, we may try to see if some of them have value, which will be a fun and interesting problem to tackle. We’ll keep you posted.

We’re not accepting further investment at the moment. But feel free to drop us a note at team@nfttaxsaver.xyz.

:)