I understand those things. But I still don't understand how cost-basis relates to my situation.
Suppose I create an image and mint it on an Ethereum platform and someone then buys it, for which I receive Ethereum.
I had these very real expenses:
- Hardware and software expenses used in the creation and minting process.
- GAS fees I paid in Ethereum when minting the work.
- Sometimes, if the work is auctioned, I must pay additional fees in order to finalize the transaction.
I didn't pay someone else to create or mint the work.
I didn't buy the work and then resell it for a profit.
But neither was the work created and minted and sold for free. Suppose I design and build a building and then sell it for $10M. Am I not allowed to deduct my expenses from the sale amount when calculating taxes? Or can I ONLY deduct expenses if I buy it from someone ELSE and then sell it? When I create and sell a traditional painting, I can deduct my expenses and thereby reduce my taxable income accordingly. Why is it different when I sell a digital work? I do not create the digital works as investment vehicles. I am in the business of making and selling artworks; I am NOT in the business of selling pretty stock certificates as underlying assets for a commodities market.
I just don't get it. So I am obviously confused on a very low-level, systemic basis. For me, the NFTs I create are just a convenient way to package digital art for sale--and NOT investment vehicles anymore than are the paintings I sell to traditional collectors.
Please 'splain it to me like I'm 5.
