Song A Day Creator Shares ‘Tax Nightmare’ Following Multi-Million Dollar NFT Sale
Singer-songwriter Jonathan Mann recently shared his experience of turning millions in Ethereum (ETH) from a one-hour NFT sale into what became a “tax nightmare.”
For the past 17 years, Mann has released a song every day, with his 6,000th song launched on June 5, addressing the challenges stemming from his sales.
In 2022, he rapidly sold 4,000 songs that represented 13 years of creativity, amassing approximately $3 million in Ethereum within just 60 minutes. Choosing not to convert his earnings into dollars, he kept his profits in Ethereum.
However, shortly after, the market value dropped below $3,000, diminishing the dollar value of his sales.
Tax Nightmare
According to the US Internal Revenue Service (IRS), earnings received in cryptocurrency are considered ordinary income at the time of receipt. This meant Mann faced a significant tax burden, despite the decline in the value of his assets.
The IRS assessed Mann’s tax responsibilities based on the original $3 million valuation rather than the subsequent lower amounts.
In addition, Mann had already accrued $1 million in tax obligations from prior NFT projects and airdrops, including Ethereum Name Service (ENS) and ConstitutionDAO tokens.
To manage part of that debt, he borrowed $400,000 against 518 ETH using the Aave lending platform, unaware that the value of his collateral was about to plummet.
The LUNA Collapse
The May 2022 collapse of the Terra ecosystem caused the collateral’s worth to drop from $1.5 million to around $200,000, leading to an urgent repayment that left Mann with 163 ETH and an estimated capital loss of around $1.3 million.
By 2023 and 2024, IRS notices pointed out unpaid income tax nearing $1.1 million, threatening asset seizure. Mann recounted feeling “dread” over his only remaining option to resolve the situation—selling his “autoglyph.”
He wrote:
“My Autoglyph.
Minted April 8th, 2019.
(Day before my birthday)
It cost $36.
And this wasn’t just an NFT.
Matt Hall and John Watkinson (of Cryptopunks fame) created something extraordinary. The day after the minting, I transformed mine into music. John developed a custom “glyph to midi” tool for this.
This was a piece of my essence, from a time when only 50 people recognized NFTs.
By 2024, it had surpassed a valuation of $1 million.”
The proceeds from the sale helped offset his borrowing losses and allowed him to meet his tax obligations. In conclusion, Mann advised creators to convert crypto from NFT sales into dollars promptly.
He stated:
“The moral for every NFT creator: SELL. THE. ETH. IMMEDIATELY.”
This advice aligns revenue with potential tax liabilities. He mentioned utilizing the protocol 0xSplits to automatically convert half of the NFT income into USDC to mitigate exposure to price fluctuations.
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