Singer-songwriter Jonathan Mann recently opened up about the challenges he faced after earning millions in Ethereum (ETH) during a one-hour sale of his NFTs, which eventually turned into a “tax nightmare.” Mann, known for publishing one song a day for the past 17 years, released his 6,000th song on June 5, where he shared the story behind the sale and its aftermath.
Back in 2022, Mann sold 4,000 songs—equivalent to 13 years of work—in just 60 minutes, generating around $3 million in Ethereum. Instead of converting the earnings into dollars, he chose to keep them in Ethereum. Unfortunately, the market price of Ethereum dropped below $3,000 shortly after the sale, significantly reducing the value of his assets in dollar terms.
The tax implications of earning revenue directly in crypto became a major issue for Mann. The US Internal Revenue Service (IRS) treats such income as ordinary income at the time of receipt, leading to a hefty tax obligation based on the initial $3 million valuation, despite the subsequent decrease in value. Mann also had outstanding tax obligations of $1 million from 2021 related to earlier NFT mints and airdrops.
To address part of his tax balance, Mann borrowed $400,000 against 518 ETH through the Aave lending platform. However, the collapse of the Terra ecosystem in May 2022 caused his collateral’s value to plummet from $1.5 million to $200,000, resulting in a net capital loss of approximately $1.3 million.
Subsequent IRS notices in 2023 and 2024 demanded nearly $1.1 million in unpaid income tax and threatened asset seizure. Faced with this dire situation, Mann contemplated selling his prized possession, an autoglyph NFT minted in 2019 for $36 but now valued at over $1 million.
The sale of the autoglyph helped Mann offset his losses from borrowing and clear his tax obligations. Reflecting on his experience, Mann advised other creators to convert crypto from NFT sales into dollars immediately to align revenue with potential tax liabilities. He suggested using tools like 0xSplits to automatically convert a portion of NFT proceeds into stablecoins like USDC to mitigate exposure to price volatility.
In conclusion, Mann’s story serves as a cautionary tale for NFT creators, emphasizing the importance of managing tax obligations and financial risks associated with crypto earnings. By learning from his experience, creators can navigate the complexities of the crypto landscape more effectively and protect their assets in the long run.