NFT Artist Recounts ‘Crypto Tax Nightmare’ in Latest Song
Jonathan Mann, the NFT artist and musician behind the “Song A Day” project, has transformed his cryptocurrency tax struggles into a cautionary musical narrative.
In a recent track shared on X, Mann narrated the tale of how he generated $3 million by selling his complete back catalog as NFTs, only to see it evaporate during the market downturn linked to the Terra ecosystem.
“This is the story of how I made three million dollars and lost it,” Mann sings. “And how I owed the IRS more money than I made in 10 previous years.”
Musician faced $1.1 million tax bill from NFT sales
Mann recounted that it all started on January 1, 2022, when he sold 3,700 songs at $800 each, earning him approximately $3 million — all in Ether (ETH).
Initially thrilled but unprepared, Mann and his wife decided to hold onto the cryptocurrency, anticipating a rise in ETH prices. “We didn’t have a plan,” Mann confessed in his song.
However, things went awry when the value of ETH dropped in January 2022, leaving the couple uncertain about when or how much to sell. Their situation worsened when the US Internal Revenue Service (IRS) came calling.
As Mann detailed in the song, earnings from NFT sales are taxed as income. This means taxes are calculated based on the value of the ETH when received, irrespective of any subsequent declines in the asset’s value. Consequently, although their $3 million in ETH decreased in worth, their tax obligations didn’t change.
To avoid selling their crypto at a loss, Mann stated they secured a loan via the lending protocol Aave, using some of the ETH as collateral. But calamity struck as the market began to plummet, primarily due to the Terra collapse.
This event triggered a wave of liquidations across the ecosystem, including Mann’s loan. In an instant, 300 ETH vanished. “A lifetime of work erased in a moment,” he mourned.
Desperate for a solution, Mann spent months analyzing transactions with his accountant to ascertain their tax liability, eventually discovering it was $1,095,171.79.
Related: NFTs can be securities, but SEC Wells notice to OpenSea ‘not productive’ — Lawyer
Rare Autoglyph NFT comes to the rescue
Faced with the threat of possible liens on their home and the risk of losing his wife’s retirement account, Mann turned to one final option: selling a rare Autoglyph NFT he had acquired in crypto’s early days.
The musician reported that he initially attempted to sell the NFT through X but received a lukewarm response. However, he eventually connected with a broker whose client offered $1.1 million for the NFT. Mann accepted the offer to cover his IRS tax obligations.
Due to the losses incurred from the Aave loan, Mann wasn’t liable for capital gains taxes on the Autoglyph sale. “It felt so bittersweet to be done,” he sings in his track.
Despite the challenges, Mann continues to compose daily songs and sell them as NFTs, remaining hopeful that he will one day earn another $3 million.
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