Jonathan Mann’s Financial Challenges After NFT Success
Jonathan Mann, a prolific singer-songwriter known for publishing a song daily for the past 17 years, recently opened up about the financial challenges he faced after a highly profitable NFT sale turned into a complex taxation issue. On June 5, Mann celebrated the milestone of releasing his 6,000th song with a piece that discussed the consequences of his NFT earnings, which were valued in Ethereum (ETH).
Unexpected Tax Implications
In 2022, during a rapid sale event, he managed to sell 4,000 songs amounting to 13 years’ worth of creative work in less than an hour, raking in approximately $3 million in Ethereum. Rather than converting this cryptocurrency into fiat currency, Mann opted to hold onto it. Unfortunately, shortly after the sale, Ethereum prices plummeted below $3,000, significantly diminishing the dollar value of his windfall.
The tax implications of this situation were substantial. The Internal Revenue Service (IRS) in the United States considers cryptocurrency revenue as ordinary income at the time it is received. Consequently, Mann found himself liable for taxes calculated based on the initial $3 million valuation, even as the worth of his Ethereum dropped sharply.
Facing Financial Crisis
Already burdened with a $1 million tax obligation from 2021 due to prior NFT activities including mints and airdrops of tokens like Ethereum Name Service (ENS) and ConstitutionDAO, Mann faced a daunting financial crisis. To tackle this looming tax bill, he secured a loan of $400,000 by using 518 ETH as collateral through the Aave lending platform. However, the situation worsened when the value of his collateral dramatically fell due to the May 2022 collapse of the Terra ecosystem, plummeting from $1.5 million to about $200,000. As a result, Mann had to repay the loan hastily, ending up with only 163 ETH and incurring a net capital loss of around $1.3 million.
IRS Notices and Decisions
In 2023 and 2024, Mann received notices from the IRS demanding unpaid taxes totaling nearly $1.1 million, coupled with warnings of potential asset seizures, adding to his already intense financial strain. In a reflective moment, he shared his reluctance to part with a cherished NFT called “Autoglyph,” which held significant sentimental value. Originally minted on April 8, 2019, for just $36, this unique piece created by Matt Hall and John Watkinson had grown to be valued at over $1 million by 2024.
Advice for Fellow Creators
Ultimately, Mann decided to sell the Autoglyph, which enabled him to mitigate some of his losses and fulfill his tax obligations. This experience led him to advise fellow creators on the importance of converting Ethereum earnings to cash right after NFT sales, cautioning,
SELL. THE. ETH. IMMEDIATELY.
He emphasized that adopting strategies such as using 0xSplits can help creators convert a portion of their NFT proceeds into stablecoins like USDC as a hedge against volatile price fluctuations.
