Earning 40,000 yuan from cryptocurrency trading and paying 130,000 yuan in taxes? Why did Musk repeatedly diss the IRS?
On January 3, Musk posted on his social platform: Customers bought $7,000 worth of cumrocket and pledged it for 3 months to earn 6,900% return. They then sold and extracted profits to invest in NFTitties, but the developers rugged the project and they only successfully liquidated 10% of the funds. Can customers deduct the gas fees for minting to balance short-term capital gains taxes?
In order to truly understand what Musk was satirizing and why he repeatedly dissed the IRS, BlockBeats found a professional tax accountant from TaxDAO. They have been providing professional 암호화폐 asset financial management software and crypto finance and tax consulting services in the Web3 field since 2014. At the same time, they recently developed a professional crypto asset finance and tax management software FinTax for both B-end and C-end, using AI Agent to help users solve crypto finance and tax and other related needs in one stop.
Through their explanation of the US tax law and using the numbers provided in the figure as a case study for calculations, we are able to further explain the current status and future of US crypto taxation.
Graphic interpretation: A story of unreasonable taxation
First, lets interpret what kind of sad story the picture tells:
This is an example of calculating taxes on cryptocurrency investments. The calculation of taxes in the example can be broken down into three stages. The first stage is staking income, which is taxed according to ordinary income in personal income tax, with a progressive tax rate from 10% to 37%. The second stage is that investors use the staking income earned to cast NFTs, which is an investment behavior and should pay capital gains tax. The third stage is investment failure, project rug, loss of 90%. In 2023, the IRS issued a tax guidance memorandum on worthless or abandoned crypto assets, pointing out that if the taxpayer has lost control of the crypto assets (the investor in the picture has sold the depreciated crypto assets), the losses can be used to deduct before tax, but because this is an investment behavior, it can only deduct capital gains tax, and up to $3,000 of ordinary income can be deducted depending on marital status.
According to the situation in the picture, lets assume that the customer is a single person, and the pledge income is paid out in one lump sum at the end of the three-month period. As soon as the pledge income is received, the customer sells it all and invests in NFT projects, and has no other income. Then, the tax on this series of transactions can be calculated as follows:
(1) The customer purchased $7,000 of Cumrocket and pledged it for 3 months, earning 6,900% interest. Therefore, the income is $7,000*6,900% = $483,000. According to IRS regulations, this part of the income is ordinary income rather than capital gain.
(2) The amount invested in NFT afterwards is 7000* 7000% = 490,000 US dollars.
(3) After investing the profits of crypto assets into the NFT project, due to the Rug Pull, only 10% of the funds could be liquidated, and 90% of the funds were lost, which means a loss of 490,000* 90% = 441,000 USD. Because the funds have been liquidated, the loss has been realized and meets the deductible capital loss standard.
Capital losses will first be used to offset similar capital gains. In this case, there is no capital gain from the increase in the price of the currency, so the capital loss of $441,000 cannot offset capital gains. It has been assumed that the client is single. According to IRS regulations, this part of the capital loss can offset up to $3,000 of ordinary income in that year. In addition, the ordinary income tax exemption for singles is $13,850, so the clients taxable ordinary income = $483,000-3,000-13,850 = $466,150. According to the stepped ordinary income tax rate table, he needs to pay 11,000 脳 10% + 33,725 脳 12% + 50,650 脳 22% + 86,725* 24% + 49,150* 32% + (466,150-231,250)* 35% = 1,100+ 4,047+ 11,143+ 20,814+ 15,728+ 82,215 = 135,047 USD.
So from the above calculations, we can see that after a series of financial activities, the investor only had a surplus of $50,000 (including $7,000 in principal), but had to pay up to $130,000 in taxes that year. This example accurately satirizes the unreasonableness of the US crypto tax law. No wonder Musk has repeatedly dissed the IRS bill.
Crypto tax disputes: a mess
Why Musk has long been dissatisfied with the US crypto tax? FinTax tax accountants analyzed the following two reasons:
1. US taxation itself is complex, each region has its own regulations, and the compliance cost is high, almost 10 times that of China;
2. Since 2023, the United States has introduced targeted tax bills in the field of encryption, but it has not taken into account the characteristics of the encryption industry and still starts from the perspective of traditional industries. There may be some unreasonableness at the legal level itself; even if the legal theory itself is reasonable, because the government completely uses traditional tax collection and management methods to manage crypto companies, it is difficult for companies to truly implement compliance.
The case in the accompanying picture is a typical problem. Some businesses of taxpayers make money, while others lose money. However, these two profitable and losing businesses cannot offset each other in a specific tax scenario, so it is possible that the taxpayer does not make money in the end, but still has to pay a lot of taxes. A similar case is the dispute between the Jarretts and the IRS over whether pledged assets should be taxed.
관련 자료:
US Crypto Broker Regulation: Bitter Medicine or Deadly Poison?
IRS Maintains Position on Taxing Crypto Pledges: Reading Jarrett v. United States .
On the other hand, due to its decentralized and anonymous nature, cryptocurrency has also become a tool for some people to evade taxes, and this type of case has become the most common dispute in the crypto field.
Take the famous Bitcoin Jesus case as an example. The protagonist of the case, Roger Ver, was born in Silicon Valley, USA in 1979 and began investing in Bitcoin in 2011. Because he actively promoted the application and value of Bitcoin, promoted its early popularity and accumulated huge influence in the field of encrypted assets, he was dubbed the Bitcoin Jesus by the media and the encryption community.
In 2014, Roger Ver obtained citizenship of the Federation of St. Kitts and Nevis and renounced his U.S. citizenship shortly thereafter. According to U.S. tax law, individuals who renounce their citizenship are required to fully declare the capital gains of their global assets, including the amount and fair market value of Bitcoin held. The IRS believes that Roger Ver concealed and understated the value of his personal assets before renouncing his citizenship. After renouncing his citizenship, he obtained and sold approximately 70,000 Bitcoins from companies in the United States under his control, earning nearly $240 million in revenue, thereby evading at least $48 million in taxes payable.
In response, the IRS made two main charges: first, Roger Ver failed to comply with the exit tax regulations; second, Roger Ver violated his tax obligations as a non-US tax resident.
Roger Vers chances of winning the case may be affected by many factors. On the plus side, his legal team argued that the tax law is unclear about the taxation of crypto assets, which adds to the argument that there are loopholes in the tax system. They also accused prosecutors of selective enforcement, which could undermine the legitimacy of the IRS prosecution if sufficient evidence is provided. At the same time, it is particularly noteworthy that the Trump administration intends to end the strict regulation of crypto assets, and this political attitude may bring a turning point in the case. However, the disadvantage is that the prosecutors already have a lot of concrete evidence, including $48 million in unpaid taxes and a series of tax evasion records, and these behaviors are likely to meet the statutory requirements of tax evasion.
The Bitcoin Jesus case has sounded the alarm for tax compliance in the crypto industry, especially for individual investors in crypto assets. The strengthening of international cooperation and the advancement of technological means are continuously reducing the space for investors to evade taxes. For investors in the crypto industry, tax compliance has become a key issue that cannot be avoided.
관련 자료: The IRS vs. Bitcoin Jesus: The Compliance Risks Behind $48 Million in Taxes
Rich Tax: The Sword of Damocles for the Crypto Industry
In addition, the series of corporate taxes and rich taxes introduced by Biden when he first took office also caused Musk to bleed heavily.
After Biden entered the White House in 2020, he launched multiple rounds of large-scale infrastructure plans to realize his political ambitions. High spending must be supported by high taxes. American companies and the wealthy class will be the first to pay high taxes to pay for this plan. Musk will undoubtedly be operated by Biden. When Biden announced the 2023 budget, he proposed a new tax plan for the wealthy group, imposing a minimum income tax of 25% on citizens with a net worth of more than 100 million US dollars, including standard taxable taxes and annual returns on the total value of tradable assets (including stocks, bonds, mutual funds and other securities). According to a report released by ProPublica in 2021, Bidens rich tax will cause technology giants such as Musk to pay $35 billion to $50 billion in taxes. That year, the news that Musk will pay an $11 billion tax bill became a hot topic, which was the highest single tax bill paid by an individual in American history.
Under the new regulations, the US capital gains tax will reach a record high. Source: US Treasury Department
After raising the fiscal year 2025 budget to $7.3 trillion, Biden once again proposed a tax on unrealized gains, and plans to tax unrealized gains of trusts, companies and other non-corporate entities that have not had a recognition event in the past 90 years. Taxing unrealized gains means that even if individuals or companies (with a net worth of more than $100 million) hold tradable assets such as stocks and bonds that have not been sold, they still need to pay a minimum income tax of 25% when their value increases.
This bill is tantamount to a declaration of war for the venture capital circle, which regards valuation growth as the underlying logic of everything. When talking about the tax plan, Bill Ackman said that the Democratic Party should not implement a tax policy that will destroy the US economy. If someone invests in your startup at a valuation of $1 billion and you own 50% of the company, you will immediately incur $100 million in taxes… All American startups will go bankrupt, and no one will be willing to start a business in the United States anymore. In the latest podcast, the two founding partners of A16Z expressed the same view. This bill is like a shaky sword of Damocles hanging over the heads of startups. The huge tax may bring a fatal blow at any time, limiting the development of entrepreneurship and investment.
David Sacks said at a technology conference earlier this year that this tax could stifle the start-up industrys system of providing stock options to founders and employees, and said this is an important reason for Silicon Valley to seriously consider who it should vote for. The investment community believes that this tax policy will greatly distort the investment behavior of American investors, especially when it comes to small-cap stocks and start-ups. These companies are often engines of economic growth and innovation, but they rely on investors who are willing to take risks for future returns. But when unrealized gains are also included in the tax scope, investors will no longer prefer growth-oriented companies because their valuations tend to fluctuate more than larger and more mature companies.
더 읽어보세요: Silicon Valley Turns Right: Peter Thiel, A16Z, and the Political Ambition of Cryptocurrency
What is the future of crypto tax law?
Since the birth of the cryptocurrency market, the taxation of its transactions has been a focus of debate. The core contradiction lies in the different positions of the government and investors: the government hopes to increase fiscal revenue through taxation, while investors are worried that excessive tax burdens will reduce investment returns.
Even in South Korea, where enthusiasm for cryptocurrency speculation is high, the authorities have been attempting to regulate the crypto sector through high taxation. This involves not only a game between regulators and the market, but also a struggle for discourse power between the Democratic Party and the Peoples Power Party.
The Democratic Party of Korea has long planned to impose a 20% tax on cryptocurrency gains (22% as local tax), which was originally scheduled to take effect on January 1, 2022, but due to strong opposition from investors and the industry, the plan has been postponed twice to January 1, 2025. After a press conference on December 1, 2024, the tax collection was postponed again to 2027. The ruling Peoples Power Party also proposed that it hopes to postpone the implementation time to 2028.
But overall, South Korea has taken a more cautious attitude towards cryptocurrency taxation and has not imposed mandatory regulation on the market. On the one hand, it provides time and space for the market to develop naturally, and on the other hand, it also provides a valuable window for South Korea to observe the policy implementation effects of other countries and global regulatory trends, and to establish a more complete tax system based on the lessons learned from others.
The US attitude towards the crypto market has been improving since Trump took office. From the SEC Chairman to the Treasury Secretary, and then to the overall coordination of the Crypto Tsar, the Trump administrations Crypto Group not only represents an important policy adjustment, but also foreshadows a major turning point in the US cryptocurrency industry. However, FinTax tax accountants are conservative about the governments attitude towards taxation, believing that although Trump promised many favorable policies for the crypto industry before taking office, and will continue to introduce policies later, it will only be stricter at the tax level. Because Trumps original intention to support the crypto industry is to recognize the important role of the crypto industry in the US financial system and technological development, and believes that it can bring new increments to the financial technology field, and this increment must be reflected at the tax level, so in the future, crypto taxes will become clearer and clearer, and tax collection and management will also develop in a stricter direction.
Musks satirical picture has led to a coin craze and left new imaginations for the crypto field. In the 2025 crypto tax system released by the U.S. Treasury Department, the rules related to DeFi and non-custodial wallet providers have been temporarily shelved, which also shows the U.S. governments cautious attitude towards the formulation of crypto tax policies. In the future, whether in the adaptability of tax policies or in the supervision of tax evasion and tax avoidance, the U.S. tax law still has a long way to go. It is expected that while the crypto industry is galloping forward like a wild horse, there will also be a strong rein to 가이드 it in the right direction.
참고문헌:
Overview of the US crypto tax regime ;
The IRS stipulates that pledge proceeds are taxed as ordinary income when received ;
Ordinary income tax rates and capital gains tax rates ;
Income from crypto assets that is considered ordinary income ;
Crypto-asset transactions subject to capital gains tax ;
This article is sourced from the internet: Earning 40,000 yuan from cryptocurrency trading and paying 130,000 yuan in taxes? Why did Musk repeatedly diss the IRS?
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