On July 4, President Donald Trump signed the “big, beautiful bill” into law, marking his largest legislation to date. The law includes many provisions, including some that affect Social Security recipients.

One aspect that has received a lot of attention is the impact on Social Security taxes. Trump campaigned on eliminating federal taxes on Social Security benefits and has touted that this law does that, but that’s not quite accurate.

The new rules don’t eliminate the federal tax on Social Security, but do offer a deduction to eligible individuals. Let’s take a look at how the new changes will work.

Image source: Getty Images.

How federal Social Security taxes work

The IRS uses your “combined income” to calculate your tax bill. This includes the following:

• Adjusted gross income (AGI): Your total income from all non-Social Security sources.
• Nontaxable interest: Interest income not subject to federal tax, such as from U.S. Treasury and municipal bonds.
• Half of your Social Security benefits: 50% of your total Social Security benefits for the current year.

Once the IRS calculates your combined income, it uses the following to determine how much of your benefits are eligible to be taxed:

Data source: IRS.

The federal tax process for Social Security can be confusing

The percentages in the above table aren’t how much your benefits are taxed, just how much is eligible to be taxed. The amount that’s eligible to be taxed is added to other income you have and then taxed at your normal income tax rate.

To see it in action, let’s assume you’re married and filing jointly, and the following are true:

• Your combined AGI is $40,000.
• You earned $1,000 in Treasury and municipal bond interest.
• Your Social Security benefits for the year add up to $20,000.

In this case, your combined income would be $51,000 ($40,000 + $1,000 + $10,000). This means up to 85% of your benefits for the year ($17,000) are eligible to be taxed and will be added to your other income to be taxed normally. 

How does the new law affect federal Social Security taxes?

The law that Trump signed doesn’t eliminate the federal Social Security tax, but it does offer a temporary deduction for some people 65 and older.

From now until 2028, qualified people 65 and older will receive a $6,000 deduction ($12,000 for couples). To qualify for the full deduction, single filers must have a modified adjusted gross income (MAGI) below $75,000, and couples must have a MAGI below $150,000.

Single filers with a MAGI between $75,000 and $175,000 and couples with a MAGI between $150,000 and $250,000 are eligible for a reduced deduction. Anybody earning over those thresholds isn’t eligible.

Unlike other types of deductions, you can claim this one whether you take the standard deduction or itemize your deductions.

Who will benefit from the new deduction?

Most low-income individuals already don’t pay federal taxes on their Social Security benefits, so this new deduction doesn’t really affect them. High-income folks aren’t eligible for the deduction, so it doesn’t help them, either. Middle-income people stand to benefit. 

It’s important to note that the federal tax rules on Social Security don’t affect state-level taxes on benefits. There are currently nine states that tax Social Security benefits, so if you’re living in one of those, make sure you’re aware of your state’s specific tax rules.

President Donald Trump is reportedly intensifying his pro-crypto agenda with plans to expand access to trillions from retirement funds and ease taxation for everyday crypto use.

According to a June 17 report by the Financial Times, sources familiar with the matter say the President could soon issue an executive order allowing 401(k) retirement plans to invest in cryptocurrencies, gold, and private equity.

This initiative would mark a major shift in US retirement policy. Traditionally, 401(k) plans are limited to conventional assets like stocks and bonds. By including crypto and other alternatives, the White House aims to modernize investment options and tap into the growing appeal of digital assets.

A 401(k) is a tax-advantaged retirement plan in which US employees contribute a portion of their wages to an investment account. The new executive order is expected to direct federal regulators to evaluate and revise existing rules that currently restrict access to alternative assets.

If implemented, the move could lead to policies supporting direct crypto ownership, exposure through ETFs, and investments in blockchain-focused companies.

Omar Kanji, a partner at crypto venture firm Dragonfly, called the development the “biggest unlock” for the digital asset sector.

He noted:

“US retirement assets sit at $43 trillion, with $9 trillion in 401ks. With Trump opening the flooodgates, if crypto sees just a 1% allocation from 401ks, that’s ~$90B in fresh inflows. The retirement market is enormous, and the real party is about to get started.”

Bitcoin tax relief

In a separate development, the Trump administration is exploring a “de minimis” tax exemption for small crypto transactions. This would remove capital gains tax obligations for minor purchases made with digital assets like Bitcoin.

White House Press Secretary Karoline Leavitt confirmed that the administration is actively considering the policy as part of its strategy to promote crypto usage.

Currently, US tax law treats every crypto transaction as a taxable event that requires reporting of even small profits. The proposed exemption would mirror existing rules that waive taxes on foreign currency gains under $200, reducing the administrative burden for users making low-value purchases.

Custodia Bank CEO Caitlin Long emphasized the magnitude of this potential change, stating that it could surpass the impact of the GENIUS Act, a recently approved pro-crypto legislation.

If enacted, the exemption could accelerate Bitcoin’s role as a functional payment method rather than just an investment vehicle.

Mentioned in this article

Non-fungible token (NFT) artist Jonathan Mann, the musician behind the “Song A Day” project, has turned his crypto tax ordeal into a cautionary musical tale. 

In a new track shared on X, Mann recounted how he made $3 million selling his entire back catalog as NFTs, only to see it vanish as the market crashed during the Terra ecosystem collapse.

“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 owed $1.1 million in taxes on NFT sales

Mann said it all began on Jan. 1, 2022, when he sold 3,700 songs at $800 each, netting him roughly $3 million — all in Ether (ETH). 

Excited but unprepared, Mann and his wife decided to hold onto the crypto, hoping ETH prices would increase. “We didn’t have a plan,” Mann admitted in the song. 

Things took a turn when ETH’s value declined in January 2022, and the couple was unsure about how much to sell or when. To add to their woes, the US Internal Revenue Service (IRS) came knocking at their door. 

As Mann explained in the song, his earnings from selling NFTs are taxed as income. This means that tax is based on the value of the ETH when received, regardless of whether the crypto asset later crashes in value. Because of this, even though their $3 million in ETH went down in price, their tax bill remained the same.  

To avoid selling their crypto at a loss, Mann said they took out a loan through the lending protocol Aave, using some of the ETH as collateral. But disaster struck as the market started to crash, driven by the Terra collapse. 

The incident triggered a cascade of liquidations across the ecosystem, which included Mann’s loan. In a flash, 300 ETH disappeared. “A lifetime of work erased in a moment,” he lamented. 

Scrambling to find a way out, Mann spent months combing through transactions with his accountant to determine how much they owed — they found out it was $1,095,171.79. 

Related: NFTs can be securities, but SEC Wells notice to OpenSea ‘not productive’ — Lawyer

Rare Autoglyph NFT saves the day

With the threat of potential liens on their home and risks of losing his wife’s retirement account, Mann turned to one last option: selling a rare Autoglyph NFT he purchased back in crypto’s early days. 

The musician said he attempted to sell the NFT through X but did not get a good reception. However, he found a broker with a client who offered $1.1 million for the NFT. Mann said that he accepted the deal to pay for the IRS taxes. 

Because of the losses incurred in the Aave loan, Mann did not owe capital gains taxes on the Autoglyph sale. “It felt so bittersweet to be done,” he sings at the end.

Despite the ordeal, Mann continues writing daily songs and selling them as NFTs, still hopeful he’ll one day earn another $3 million.

Magazine: Trump-Biden bet led to obsession with ‘idiotic’ NFTs —Batsoupyum, NFT Collector

]]> https://earlybirdsinvest.com/musician-made-3m-selling-nfts-and-lost-it-all-to-taxes-and-a-crypto-crash/feed/ 0 40652 https://earlybirdsinvest.com/irs-cracks-down-pennsylvania-trader-evaded-3-3m-taxes-on-nft-sales/ https://earlybirdsinvest.com/irs-cracks-down-pennsylvania-trader-evaded-3-3m-taxes-on-nft-sales/#respond Mon, 14 Apr 2025 16:53:49 +0000 https://earlybirdsinvest.com/irs-cracks-down-pennsylvania-trader-evaded-3-3m-taxes-on-nft-sales/

A Pennsylvania NFT trader faces up to six years in prison after pleading guilty to federal tax fraud charges for failing to report $13 million in profits from CryptoPunk NFT sales. Waylon Wilcox, 45, deliberately concealed 97 high-value NFT transactions over two years, evading approximately $3.3 million in taxes in what prosecutors describe as one of the first major U.S. cases involving NFT-related tax evasion.

• Wilcox underreported income by $8.5 million in 2021 and $4.6 million in 2022 from CryptoPunk sales, selecting “no” when asked about cryptocurrency transactions on tax forms.

• The IRS uncovered the fraud by tracing blockchain records and exchange data, demonstrating their improving ability to link crypto transactions to individuals.

• The case coincides with intensified IRS focus on cryptocurrency tax compliance ahead of the April 15 deadline.

• This prosecution could establish a precedent for how NFT profits are treated under tax law and the serious consequences of evasion.

The Fraud Scheme Details

Court documents reveal that Wilcox conducted 62 CryptoPunk sales in 2021, generating $7.4 million, and another 35 sales in 2022, generating $4.9 million. Despite these substantial profits, he falsely claimed on his tax forms to have no involvement with digital asset transactions.

This deliberate misrepresentation allowed Wilcox to underpay $2.1 million in taxes for 2021 and $1.1 million for 2022. The guilty plea was entered on April 9, 2025, with sentencing expected to include imprisonment, supervised release, and additional fines.

IRS Cryptocurrency Compliance Efforts

This case highlights the IRS’s increasingly sophisticated approach to tracking cryptocurrency transactions. The agency used blockchain analytics tools to trace Wilcox’s sales and match them to his identity, breaking through the perceived anonymity of crypto wallets.

Philadelphia Field Office Special Agent Yury Kruty stated, “IRS Criminal Investigation is committed to unravelling complex financial schemes involving virtual currencies and non-fungible token (NFT) transactions designed to conceal taxable income. He continued, “In today’s economic environment, it’s more important than ever that the American people feel confident that everyone is playing by the rules and paying the taxes they owe.”

The IRS issued guidance in 2023, specifically requiring NFT gain and loss reporting. Using a “look-through analysis,” the IRS will determine if an NFT is a collectible based on its associated asset. For example, NFTs tied to gems or art would be considered collectibles, subject to a higher tax rate of up to 28%. Public comments were solicited to refine this approach.

Impact on the NFT Market

Despite regulatory scrutiny and legal cases like Wilcox’s, the CryptoPunk collection continues to maintain significant market value. While trading volume has dropped approximately 70% from its 2021 peak, CryptoPunks remains the largest NFT collection with a floor price that has stabilized at around $68,000.

Yuga Labs, which acquired CryptoPunks in 2022, has preserved the collection’s legacy despite initial concerns about commercialization. The ongoing value of these digital assets makes clear why tax authorities are paying increased attention to the sector.

Tax Implications and Blockchain’s Transparency Paradox

The Wilcox case establishes an important precedent for how NFT profits are treated under tax law and the serious consequences of evasion. NFT sales are typically taxed as capital gains or ordinary income depending on holding periods, with the same reporting requirements as traditional assets.

The Wilcox case also exposes an interesting paradox in blockchain technology. While all transactions are recorded on a public ledger, the pseudonymous nature of wallets creates an illusion of privacy that some traders mistakenly believe shields them from tax obligations.

In reality, as this case demonstrates, the IRS has become adept at connecting wallet addresses to real identities through exchange records, withdrawal patterns, and other investigative techniques. The permanent nature of blockchain records means evidence of transactions remains available indefinitely for future investigation.

Lawmakers in the Ohio House of Representatives proposed a bill to prevent extra taxes on crypto payments and address mining, staking, and regulation of digital assets and investments by the state retirement systems.

Lawmakers Introduce ‘Ohio Blockchain Basis Act’

On Monday, Ohio lawmakers introduced the “Ohio Blockchain Basis Act,” or House Bill 116 (HB116), to amend the existing legislation and prevent state and local governments from imposing additional taxes on crypto assets used as a payment method.

Sponsored by Representative Steve Demetriou and co-sponsored by Tex Fischer, Brian Lorenz, Ty D. Mathews, Riordan McClain, and Josh Williams, Bill 116 aims to prevent the General Assembly from enacting “a bill that proposes to impose a fee, tax, assessment, or other change on digital assets used as a method of payment for goods and services.”

Ohio lawmakers introduce House Bill 116. Source: LegiScan

If passed, HB116 would still allow fees, taxes, assessments, or other charges that usually apply to legal tender transactions on crypto transactions.

It also mandates that no political subdivision or state agency could prohibit Ohio residents from accepting digital assets as payment for goods and services or restrict them from custodying their crypto assets using hardware or self-hosted wallets.

Under the proposed bill, individuals are not required to have a money transmitter license to engage in crypto mining, staking, or exchanging a crypto asset for another digital asset, while businesses offering mining or staking services won’t be “considered to be offering a security or investment contract.”

Moreover, the state retirement funds will be required to evaluate the potential risks and benefits of investing in crypto exchange-traded funds (ETFs) and write a report for the General Assembly within a year.

Ohio Continues Crypto Legislation Efforts

This move follows other similar proposals from Ohio lawmakers, including former Ohio state senator Niraj Antani’s proposed Senate Bill 317 last September.

If passed, the bill would have required the state to accept digital assets for state taxes and fee payments and allowed state institutions and pension funds to invest in digital assets. However, according to LegiScan, the bill only progressed 25% before dying in Committee.

Moreover, Ohio State Representative Derek Merrin introduced a bill in December to create a BTC reserve within the state treasury.

The “Ohio Bitcoin Reserve Act,” or House Bill 703, aimed to establish a dedicated fund within Ohio’s treasury and provide the State Treasurer with a legal framework that allows them to purchase and hold BTC.

Most recently, Ohio Senator Sandra O’Brien introduced Senate Bill 57, a second bill to allow the state to invest in Bitcoin and create the “Ohio Bitcoin Reserve Fund.” If passed, the proposed legislation will require the state’s Bitcoin investments to be held for five years.

The State Senator asserted, “The crypto world is here, and Ohio needs to be a leader. Crypto will be a major part of President Trump’s term. When his working group issues recommendations, Ohio will be ready.”

Bitcoin trades at $88,960 in the one-week chart. Source: BTCUSDT on TradingView

Featured Image from Unsplash.com, Chart from TradingView.com