NFT Tax Guide 2026: How Creators & Collectors Report NFT Taxes

Table of Contents

1. NFT Tax Basics: What You Need to Know
2. How NFT Sales Are Taxed (Capital Gains)
3. NFT Creator Taxes: Income vs Royalties
4. Gas Fees and Cost Basis Adjustments
5. Fractionalized NFTs: Unique Tax Treatment
6. NFT Staking, Lending, and Yield
7. How to Report NFTs on Your Tax Return
8. Common NFT Tax Mistakes to Avoid
9. NFT Tax Loss Harvesting Strategies
10. State Tax Considerations for NFTs
11. FAQ: Your Top NFT Tax Questions Answered

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NFT Tax Basics: What You Need to Know

Non-fungible tokens (NFTs) have created a multi-billion dollar market, but they've also created significant tax complexity. The IRS treats NFTs as property, similar to cryptocurrency, which means every NFT transaction can trigger taxable events—from minting to selling to receiving royalties.

Here's what makes NFT taxes uniquely challenging:

Why NFTs Are Tax-Complex:

1. Multiple tax classifications - Same NFT can generate both capital gains and ordinary income
2. Creator vs collector treatment - Different rules depending on your role
3. Royalty income tracking - Ongoing tax obligations from secondary sales
4. Cross-chain complications - Bridging and wrapping create taxable events
5. Fractionalization - Splitting NFTs into fungible tokens has unique implications
6. Gas fee tracking - Every blockchain transaction affects your cost basis

Key Principle: The IRS distinguishes between:

• Collectors (investors) → Capital gains/losses treatment
• Creators (businesses) → Ordinary income + self-employment tax
• Both → You may owe taxes under multiple classifications

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How NFT Sales Are Taxed (Capital Gains)

When you sell an NFT you own as a collector, you owe capital gains tax on any profit. This is identical to selling stocks, real estate, or cryptocurrency.

Capital Gains Formula

Sale Price - Cost Basis = Capital Gain (or Loss)

Cost Basis Includes:

• Purchase price paid for the NFT
• Gas fees for the purchase transaction
• Platform fees (OpenSea, Blur, etc.)
• Any ETH/crypto converted to buy the NFT (triggering its own capital gain)

Short-Term vs Long-Term Capital Gains

Holding Period Matters:

Holding Period	Tax Treatment	Tax Rate
≤ 1 year	Short-term capital gains	10-37% (ordinary income rates)
> 1 year	Long-term capital gains	0%, 15%, or 20% (lower rates)

Example: NFT Sale as Collector

You bought a Bored Ape NFT on January 15, 2025 for 45 ETH ($75,000) plus 0.05 ETH gas ($100). You sell it on December 1, 2025 for 60 ETH ($120,000).

Tax Calculation:

• Sale price: $120,000
• Cost basis: $75,000 (NFT) + $100 (gas) = $75,100
• Capital gain: $120,000 - $75,100 = $44,900
• Tax type: Short-term (held < 1 year)
• Tax rate: 24% (assuming this tax bracket)
• Tax owed: $44,900 × 24% = $10,776

Important: You also owe capital gains tax on the ETH appreciation when you received 60 ETH at sale.

The "Two-Transaction" Problem

Selling an NFT for crypto actually creates two taxable events:

1. NFT disposal → Capital gain on the NFT's appreciation
2. Crypto receipt → New cost basis established for the crypto received

This is why selling for stablecoins (USDC, DAI) can simplify tax reporting—no additional volatility to track.

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NFT Creator Taxes: Income vs Royalties

If you create and sell NFTs, the IRS treats you as a business, not an investor. This dramatically changes your tax situation.

Creator Primary Sales (Initial Minting)

When you mint and sell an original NFT, revenue is ordinary income, not capital gains.

Tax Treatment:

• Income type: Ordinary income (business/self-employment)
• Tax rate: 10-37% federal + self-employment tax (15.3%)
• Form: Schedule C (business income)
• Deductions: You CAN deduct business expenses

Example: Creator Primary Sale

You're a digital artist who mints 10 NFTs on Foundation. Total sales: $50,000.

Tax Calculation:

• Gross income: $50,000
• Business deductions:
  • Software subscriptions: $1,200
  • Gas fees (minting): $800
  • Marketing: $2,000
  • Home office: $3,000
  • Total deductions: $7,000
• Net income: $50,000 - $7,000 = $43,000
• Income tax (24% bracket): $43,000 × 24% = $10,320
• Self-employment tax: $43,000 × 15.3% = $6,579
• Total tax owed: $16,899

Key Insight: Self-employment tax adds significantly to your bill, but business deductions can substantially reduce taxable income.

Creator Royalty Income (Secondary Sales)

When your NFT resells on secondary markets and you receive royalty payments, this is also ordinary income.

Royalty Tax Treatment:

• Income type: Ordinary income (royalty income or business income)
• Reporting: Schedule C (if creator business) or Schedule E (if passive)
• Frequency: Taxed in the year received, not when NFT originally sold
• Tracking requirement: Must track every royalty payment individually

Example: Ongoing Royalty Income

You set a 10% creator royalty on your NFT collection. Over 2025, your NFTs generate $150,000 in secondary sales volume, earning you $15,000 in royalties across 47 separate transactions.

Tax Obligation:

• Royalty income: $15,000
• Tax rate: Your ordinary income rate (e.g., 24%) + 15.3% SE tax
• Tax owed: $15,000 × 39.3% = $5,895

Tracking Challenge: You need records of all 47 royalty payments with:

• Date received
• Amount in crypto
• USD value at receipt
• Transaction hash
• Platform (OpenSea, Blur, etc.)

Creator Tip: When You're Both Creator AND Collector

Many NFT creators also collect others' work. You'll have two different tax treatments:

For NFTs You Created:

• Primary sale = ordinary income (Schedule C)
• Royalties = ordinary income (Schedule C)
• No capital gains (you have $0 cost basis in your own work)

For NFTs You Collected:

• Purchase = establishes cost basis
• Sale = capital gains/loss (Schedule D)
• Holding period determines short/long-term

Pro Tip: Keep separate wallets for creator activity vs collecting to simplify tax tracking.

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Gas Fees and Cost Basis Adjustments

Gas fees are a critical component of NFT cost basis that many traders overlook. Every gas fee paid increases your cost basis, reducing your capital gain and therefore your tax bill.

Gas Fees as Cost Basis (Collectors)

When you buy an NFT, the gas fee paid for the transaction is added to your cost basis.

Cost Basis Formula:

Cost Basis = NFT Purchase Price + Gas Fee (in USD at time of transaction)

Example: Gas Fee Impact on Capital Gains

You buy an NFT for 2 ETH ($4,000) and pay 0.02 ETH ($40) in gas fees. You later sell for 3 ETH ($6,000).

Without Gas Fee Adjustment:

• Sale: $6,000
• Cost basis: $4,000
• Capital gain: $2,000
• Tax (24%): $480

With Gas Fee Adjustment:

• Sale: $6,000
• Cost basis: $4,000 + $40 = $4,040
• Capital gain: $1,960
• Tax (24%): $470.40

Tax saved: $9.60 (seems small, but multiplied across dozens of NFT trades, this adds up)

Gas Fees as Business Expenses (Creators)

If you're a creator, gas fees are deductible business expenses on Schedule C.

Deductible Gas Fees:

• Minting fees
• Listing fees
• Metadata updates
• Collection deployment
• Smart contract interactions

Example: Creator Gas Fee Deductions

You minted 100 NFTs in 2025, paying $3,500 in total gas fees.

Tax Benefit:

• Gas fees: $3,500 (deductible)
• Tax bracket: 24% + 15.3% SE = 39.3%
• Tax saved: $3,500 × 39.3% = $1,375.50

Record-Keeping Requirement: Save transaction hashes for all gas fee payments as proof of business expenses.

Failed Transaction Gas Fees

Even failed transactions where gas was consumed can be included in cost basis or business deductions—you paid the fee even though the transaction reverted.

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Fractionalized NFTs: Unique Tax Treatment

Fractionalization—splitting an NFT into multiple fungible tokens (e.g., F-NFTs)—creates complex tax implications that blend NFT and cryptocurrency rules.

When You Fractionalize an NFT You Own

IRS Treatment: The IRS has not issued explicit guidance, but most tax professionals treat fractionalization as a taxable disposition (sale).

Tax Analysis:

1. Original NFT disposal: Capital gain based on Fair Market Value (FMV) of F-tokens received
2. F-token receipt: New cost basis established equal to FMV at fractionalization
3. Subsequent F-token sales: Ordinary crypto capital gains apply

Example: Fractionalizing a CryptoPunk

You own a CryptoPunk (cost basis: $100,000) and fractionalize it into 10,000 F-PUNK tokens. At fractionalization, each token is worth $15, making total FMV $150,000.

Tax Implications:

• Capital gain triggered: $150,000 (FMV) - $100,000 (cost basis) = $50,000 gain
• New F-PUNK basis: $150,000 total ($15 per token)
• Tax owed (20% LTCG): $10,000 (due in year of fractionalization)

Risk: You owe tax immediately even though you haven't received cash—only illiquid F-tokens.

When You Buy Fractionalized NFT Tokens

If you purchase F-NFT tokens on the secondary market, you're treated as buying cryptocurrency, not the original NFT.

Tax Treatment:

• Buying F-tokens = no tax event (establishing cost basis)
• Selling F-tokens = capital gains/loss
• Redeeming F-tokens for full NFT = like-kind exchange (complex)

Fractionalization Platforms to Watch

Popular F-NFT Protocols:

• Fractional.art (now Tessera)
• NFTX
• Unicly
• Bridgesplit (Solana)

Tax Warning: Without IRS guidance, fractionalization is a gray area. Conservative approach: treat as taxable disposition.

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NFT Staking, Lending, and Yield

Some NFT protocols allow you to stake NFTs to earn rewards, or lend them for yield. These activities create ongoing tax obligations.

NFT Staking Tax Treatment

When you stake an NFT and receive token rewards (e.g., APE staking for ApeCoin), each reward is ordinary income at receipt.

Tax Rules:

• Income recognition: At FMV when received
• Tax type: Ordinary income (not capital gains)
• Frequency: Each reward payment is separate income event
• Later sale: Selling rewards = capital gains based on new cost basis

Example: Bored Ape Staking

You stake your Bored Ape on ApeStake.io and earn 50 APE tokens per month (current value: $1.50 per APE = $75/month).

Tax for 12 Months:

• Total APE earned: 600 tokens
• Total income (at receipt): 600 × $1.50 = $900 ordinary income
• Tax rate: 24% bracket = $216

Later Sale Scenario: If APE drops to $1.00 when you sell 12 months later:

• Sale proceeds: 600 × $1.00 = $600
• Cost basis: $900 (income already recognized)
• Capital loss: $600 - $900 = $300 loss (deductible)

NFT Lending (Peer-to-Peer)

Protocols like NFTfi and Arcade allow lending NFTs for interest. The IRS hasn't issued specific guidance, but by analogy to crypto lending:

Tax Treatment (Likely):

• Lending your NFT: No immediate tax (still own it)
• Interest received: Ordinary income when earned
• Borrower defaults → you keep NFT: Capital gain based on FMV vs your basis

Risk Area: If the borrower keeps the NFT and you receive liquidation proceeds, you've effectively "sold" the NFT—triggering capital gains.

NFT Staking Deductions

Unlike crypto mining, NFT staking typically does not qualify for business expense deductions unless you operate a large-scale NFT investment business (rare).

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How to Report NFTs on Your Tax Return

NFTs are reported differently depending on whether you're a creator or collector, and whether transactions are primary sales, royalties, or secondary sales.

IRS Forms Required for NFT Taxes

Activity	IRS Form	Schedule	Report As
NFT sales (collector)	Form 8949	Schedule D	Capital gains/losses
NFT creator primary sales	Schedule C	Business income	Ordinary income + SE tax
NFT royalty income	Schedule C or E	Business/royalty income	Ordinary income
NFT staking rewards	Form 1040	Line 8 (other income)	Ordinary income
F-NFT transactions	Form 8949	Schedule D	Capital gains/losses

Step-by-Step: Reporting NFT Sales (Collectors)

Form 8949 Reporting Requirements:

For each NFT sold, you must report:

1. Description: "Bored Ape Yacht Club #1234" or "NFT - Ethereum"
2. Date acquired: When you bought/received the NFT
3. Date sold: When you disposed of the NFT
4. Proceeds: Sale price in USD
5. Cost basis: Purchase price + gas fees in USD
6. Gain/loss: Proceeds minus cost basis

Example Form 8949 Entry:

Description	Date Acquired	Date Sold	Proceeds	Cost Basis	Gain/(Loss)
NFT - Ethereum	03/15/2025	11/20/2025	$12,500	$8,200	$4,300

Important: You need a separate line for every NFT transaction, which can be hundreds or thousands of entries for active traders.

Step-by-Step: Reporting Creator Income (Schedule C)

Schedule C Reporting for NFT Creators:

Line 1 (Gross receipts): Total sales from primary NFT sales + royalties

• Example: $85,000 (primary sales) + $22,000 (royalties) = $107,000

Part II (Expenses): Deductible business expenses

• Minting/gas fees: $3,200
• Software/tools: $1,800
• Marketing: $5,000
• Home office: $4,200
• Professional fees: $2,000
• Total expenses: $16,200

Line 31 (Net profit): $107,000 - $16,200 = $90,800

This $90,800 flows to Schedule SE for self-employment tax calculation (15.3% up to wage base).

What Documentation You Need

Required Records for Every NFT Transaction:

• Transaction hash
• Date and time (UTC)
• NFT contract address
• Token ID
• Counterparty address
• Amount in crypto (ETH, SOL, etc.)
• USD value at transaction time
• Gas fees paid
• Platform/marketplace used

Storage Recommendation: Keep records for at least 3 years after filing (7 years for business deductions).

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Common NFT Tax Mistakes to Avoid

Mistake #1: Not Reporting NFT Sales Because Exchange Doesn't Send 1099

Reality: Most NFT marketplaces don't issue Form 1099-B. You still owe taxes.

Starting in 2026, some platforms may issue Form 1099-DA for digital asset sales, but even without a form, all NFT sales are taxable and must be reported.

Mistake #2: Ignoring Gas Fees in Cost Basis

Gas fees can represent 1-5% of purchase price for NFTs. Failing to include them inflates your capital gain and increases tax owed.

Consequence: Overpaying taxes by hundreds or thousands of dollars.

Mistake #3: Treating Creator Income as Capital Gains

NFT creators sometimes mistakenly report primary sales as capital gains (lower tax rate) instead of ordinary income.

IRS Position: If you created the NFT, you have zero cost basis—all revenue is ordinary income subject to self-employment tax.

Audit Risk: HIGH. The IRS can reclassify and assess penalties (20-40% penalty + interest).

Mistake #4: Not Tracking Royalty Income

Every royalty payment is a separate taxable event. Missing even one creates reporting errors.

Solution: Use automated tracking software that monitors royalty contracts on-chain.

Mistake #5: Assuming Wash Sale Rules Don't Apply

Important Update: The 2025 tax law changes may extend wash sale rules to NFTs.

Wash Sale Rule (if applicable): If you sell an NFT at a loss and repurchase an "substantially identical" NFT within 30 days, you cannot deduct the loss.

Gray Area: What makes NFTs "substantially identical"?

• Same collection? (e.g., two different Bored Apes)
• Same artwork series?
• F-NFT tokens of same underlying NFT?

Conservative Approach: Wait 31 days before repurchasing NFTs from same collection after taking a loss.

Mistake #6: Forgetting Cross-Chain Bridging

Bridging an NFT from Ethereum to Polygon, or wrapping it for use in another protocol, is technically a taxable disposition—even though you still "own" the asset.

IRS Logic: You disposed of NFT-ETH and acquired NFT-Polygon (different property).

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NFT Tax Loss Harvesting Strategies

Like stocks and crypto, NFTs can be tax-loss harvested to offset capital gains and reduce your tax bill.

How NFT Tax Loss Harvesting Works

Basic Strategy:

1. Identify NFTs you own trading below purchase price (unrealized losses)
2. Sell those NFTs before December 31 to realize the loss
3. Use losses to offset NFT/crypto/stock gains for the year
4. Excess losses (up to $3,000) offset ordinary income

Example: NFT Loss Harvesting

Your 2025 NFT Activity:

• NFT Collection A sales: $50,000 gain
• NFT Collection B (currently underwater): $30,000 unrealized loss

Tax Strategy:

• Sell Collection B before Dec 31 to realize $30,000 loss
• Net capital gain: $50,000 - $30,000 = $20,000
• Tax saved (20% LTCG): $30,000 × 20% = $6,000

Advanced: Selective Loss Harvesting by Token ID

Unlike fungible crypto, each NFT is unique with its own cost basis. This allows selective loss harvesting.

Example:

You own 5 NFTs from the same collection:

• NFT #1: Cost basis $5,000, FMV $3,000 (loss: $2,000)
• NFT #2: Cost basis $6,000, FMV $8,000 (gain: $2,000)
• NFT #3: Cost basis $4,000, FMV $3,500 (loss: $500)
• NFT #4: Cost basis $7,000, FMV $7,200 (gain: $200)
• NFT #5: Cost basis $5,500, FMV $4,000 (loss: $1,500)

Optimal Strategy:

• Sell NFTs #1, #3, and #5 (realize $4,000 in losses)
• Keep NFTs #2 and #4 (defer $2,200 in gains)
• Net: $4,000 loss to offset other gains

Wash Sale Considerations

If wash sale rules apply to NFTs (unclear), you cannot:

• Sell an NFT at a loss
• Repurchase the "same" NFT within 30 days
• Deduct the loss

Workaround: Since each NFT is unique by token ID, buying a different NFT from the same collection likely avoids wash sale rules.

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State Tax Considerations for NFTs

Most states follow federal treatment, but some have unique rules.

States With No Income Tax (NFT-Friendly)

Zero state tax on NFT gains:

• Alaska
• Florida
• Nevada
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

Benefit: Only federal capital gains apply, potentially saving 3-13% depending on state.

States With Specific Crypto/NFT Guidance

Washington State:

• No income tax BUT has B&O (Business & Occupation) tax
• NFT creators may owe B&O tax on gross receipts (0.471% for services)
• NFT sales by collectors generally exempt

New York:

• Follows federal treatment (capital gains for collectors, income for creators)
• NYC residents pay additional city tax (3.078-3.876%)

California:

• Aggressive enforcement of creator/dealer classification
• Hobby loss rules may limit deductions for small creators

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FAQ: Your Top NFT Tax Questions Answered

1. Do I have to pay taxes on NFTs if I don't cash out to USD?

Yes. Selling an NFT for ETH, SOL, or any cryptocurrency is a taxable event. You owe capital gains tax based on the USD value at the time of sale, even if you never convert to dollars.

2. What if I received an NFT for free (airdrop or mint)?

Free NFTs have $0 cost basis. When you sell, your entire proceeds are taxable gain. However, if you can prove you incurred costs (gas fees for claiming airdrop), those increase your basis.

3. Are NFT gas fees tax deductible?

For collectors: Gas fees increase cost basis, reducing capital gains (not directly "deductible" but reduces taxes).

For creators: Gas fees are deductible business expenses on Schedule C.

4. Do I pay taxes when I mint an NFT?

Minting alone is not taxable. You pay tax when you sell the NFT (creator income) or when you receive royalties from secondary sales.

5. How are NFT giveaways taxed?

If you receive: Ordinary income equal to FMV at receipt (cost basis established).

If you give away: Capital gain based on FMV vs. your cost basis (you "sold" it for FMV).

6. Can I deduct worthless NFTs?

Yes, but with conditions. If an NFT collection completely rugs or goes to $0, you can claim a worthless security deduction. You must document:

• The NFT has no recoverable value
• There's no market for it
• You made reasonable efforts to sell

Report as a capital loss on Form 8949 with $0 proceeds.

7. How do I report NFT-to-NFT swaps?

Each NFT disposal is taxable. If you swap NFT-A for NFT-B:

1. Calculate gain/loss on disposing of NFT-A (based on FMV of NFT-B received)
2. Establish new cost basis for NFT-B equal to its FMV at receipt

Example:

• You trade CryptoPunk (basis: $80,000) for Bored Ape (FMV: $120,000)
• Capital gain on CryptoPunk: $120,000 - $80,000 = $40,000
• New Bored Ape basis: $120,000

8. Are profile picture (PFP) NFTs treated differently than art NFTs?

No IRS distinction. All NFTs are property for tax purposes, regardless of use case (art, PFP, gaming, metaverse land, etc.). Tax treatment depends on your activity (creator vs collector), not NFT category.

9. Do foreign NFT marketplaces report to IRS?

Generally no, but that may change. Form 1099-DA (starting 2026) may require foreign exchanges serving US customers to report. Regardless, you must report all NFT income and gains.

10. What if I lose my NFT records from years ago?

Reconstruct using blockchain data. Every NFT transaction is permanently on-chain. Use:

• Etherscan, Solscan, Polygonscan (blockchain explorers)
• Wallet transaction history
• OpenSea/Blur account history
• Tax software with wallet import features

If reconstruction is impossible, use $0 cost basis (conservative approach) or "reasonable estimation" with documentation of good-faith effort.

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Summary: NFT Tax Action Checklist

For NFT Collectors:

• Track purchase price + gas fees for every NFT (cost basis)
• Record sale proceeds + dates for all NFT sales
• Report each sale on Form 8949 (capital gains)
• Consider tax-loss harvesting before December 31
• Save transaction hashes for 3-7 years

For NFT Creators:

• Report primary sales as ordinary income (Schedule C)
• Track and report all royalty payments (ordinary income)
• Deduct business expenses (gas fees, software, marketing)
• Pay self-employment tax on net profit (15.3%)
• Consider LLC/S-Corp election if profitable
• Track inventory if holding multiple NFTs for sale

For Both:

• Include gas fees in every calculation
• Distinguish between creator activity and collecting
• Keep detailed records with transaction hashes
• Consider crypto tax software for automation
• Consult a crypto-specialized CPA for large portfolios

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About the Author

CryptoForms Research Team
This guide represents extensive research into NFT taxation, consultation with licensed CPAs specializing in digital assets, and analysis of IRS guidance and private letter rulings. Led by Nicholas Delgado (CEO/CTO) and Alex Cruzet (CAO, MAcc, MBA, former EisnerAmper blockchain tax division).

Last Reviewed: November 26, 2025
Next Review: February 2026 (post-tax season updates)

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Related Articles

Essential NFT Tax Resources:

• Complete Crypto Tax Guide 2026 - Foundational crypto tax principles
• Form 1099-DA Complete Guide - New 2025 reporting requirements
• Best Crypto Tax Software 2026 - Compare platforms for NFT tracking
• DeFi Tax Guide - Yield farming and liquidity pool taxation

Advanced Topics:

• Crypto Tax Loss Harvesting Guide - Maximize tax savings
• How to Report Crypto on Your Taxes - Step-by-step filing
• Crypto Capital Gains Tax Explained - Understand your rate

For Professionals:

• CPA Multi-Client Crypto Tax Software - Manage NFT creator clients
• Crypto Tax CPA Certification - Specialize in digital assets

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Disclaimer: This article provides general tax information and should not be considered professional tax advice. NFT tax rules are complex and evolving. Consult a qualified tax professional or CPA specializing in cryptocurrency and NFTs for advice specific to your situation. CryptoForms is not a CPA firm and does not provide tax, legal, or accounting advice.

Publication Information:
Published: November 26, 2025
Updated: November 26, 2025
Word Count: 4,247 words
Read Time: 16 minutes

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