Singer-songwriter Jonathan Mann recently Share The story of his earning millions of people at Ethereum (ETH) during an hour-long sale of his NFTs has ultimately become a “tax nightmare.”
Mann has released one song a day in the last 17 years, releasing his 6,000th song on June 5th.
In 2022, he sold 4,000 songs, the equivalent of 13 years of work within 60 minutes, and sold Ethereum in total of about $3 million. Instead of converting it to dollars, he held Ethereum revenue.
However, a week later, the market price fell below $3,000, reducing the dollar value of the sale.
Tax nightmare
The U.S. Internal Revenue Service (IRS) treats revenue generated through income directly as normal income at the time of receipt. He had a massive tax liability, despite his assets no longer worth the same dollar amount.
Tax Man calculated Mann’s tax liability based on an initial $3 million valuation, not a later low price.
Mann had already accumulated $1 million in 2021 obligations related to previous NFT mint and airdrops, including the Ethereum Name Service (ENS) and the Constitutional Dao Tokens.
To cover some of that balance, he borrowed $400,000 against 518 ETH via the Aave Lending platform. But little did he know that his collateral was about to evaporate.
Luna collapses
However, the collapse of the Terra ecosystem in May 2022 reduced the value of the collateral from $1.5 million to about $200,000, forcing Mann to last-minute repayments, leaving him with 163 ETH and a net capital loss of about $1.3 million.
The 2023 and 2024 IRS notifications cited nearly $1.1 million of outstanding income taxes, threatening asset attacks. Mann said he was “terrified” at the time the only option he had left to resolve his dilemma.
He wrote:
“My autoglyph.
Made on April 8, 2019.
(The day before my birthday)
The cost is $36.
And this wasn’t just NFT.
Matt Hall and John Watkinson (Cryptopunk fame) have created something special. The day after mint, I turned mine into music. John created a custom “glyph to MIDI” tool for that.
That was part of my soul when 50 people knew what NFT was.
By 2024 it was worth more than $1 million. ”
The sale offset the losses from his borrowing and helped him to clear his tax liability. In conclusion of his story, Mann urged creators to convert crypto from NFT sales to dollars.
He wrote:
“Morality of all NFT creators: Sale.
This matches revenues with future tax liabilities. He cited using protocol 0xSplits to automatically convert half of the NFT revenue to USDC, reducing exposure to price fluctuations.