NFT Artist's $3M Tax Nightmare: A Cautionary Tale
NFT Artist's $3 Million Tax Nightmare
Jonathan Mann, the musician behind the "Song A Day" project, recently shared a cautionary tale about his crypto tax ordeal in a new song. After selling his entire back catalog as NFTs for $3 million in Ether (ETH), the subsequent market crash during the Terra ecosystem collapse wiped out his profits and left him with a massive tax bill.
His song details the ordeal: selling 3,700 songs at $800 each, holding onto the ETH, then facing a $1,095,171.79 tax bill from the IRS. The IRS taxed the ETH's value at the time of receipt, regardless of the later price drop.
Aave Loan and Market Crash
To avoid selling at a loss, Mann and his wife took out a loan on Aave, using their ETH as collateral. The Terra collapse triggered a cascade of liquidations, including theirs, resulting in the loss of 300 ETH.
Rare NFT Rescue
Faced with potential liens and the risk of losing his wife's retirement account, Mann sold a rare Autoglyph NFT he owned for $1.1 million—precisely covering his tax debt. This sale, however, didn't trigger capital gains tax due to the Aave loan losses.
Key Takeaways and Crypto Tax Planning
- Understand crypto tax implications: The IRS taxes crypto at the time of receipt, not at the time of sale.
- Develop a tax plan: Don't hold onto large amounts of crypto without considering potential tax liabilities.
- Seek professional advice: Consult with a tax professional specializing in cryptocurrency to help manage your tax obligations.
Mann's experience serves as a stark reminder of the complexities and risks involved in the cryptocurrency market. Proper tax planning is crucial for anyone involved in NFT sales or other crypto transactions. At Codeum, we provide comprehensive blockchain security and development services, including tokenomics and security consultation, helping you navigate these complexities and build secure, robust blockchain solutions.
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