Fan tokens are growing in popularity, as many people trade tokens from their favorite football clubs while making a profit, but what about taxes?
Popular platforms like Chiliz and more recently Binance are partnering with leading sports and entertainment organizations to launch tokens, where fans can interact closely with them while opening the door for cryptocurrency traders to make a profit.
Today, we cover all the tax implications of trading fan tokens in the US.
Do you pay taxes when trading fan tokens?
Yes. In the US, if fan token trading is a taxable event, it is subject to capital gains taxes. why? Trading Bitcoin or any other cryptocurrency for a fan token is a taxable crypto-to-crypto trade in the United States. If you sell a FIAT fan token, you will also have a taxable event in the US, subject to capital gains taxes.
Let’s look at an example.
Let’s imagine that you are a huge fan of Barcelona. In January 2021, I bought 1 Bitcoin at $40K. In February, you want to buy $BAR fan tokens. In February, 1 Bitcoin was worth $50K, and you spent 0.1 BTC (worth $5,000 BAR tokens). In this case, I bought $416.66 BAR fan codes because each BAR was $12.02. This transaction is a taxable event that can be broken down into two sub-events:
The first transaction we should look at is buying bitcoin;
The second transaction is to sell Bitcoin for a fan token (crypto-to-crypto trade).
When you sell bitcoin, you have a taxable event. for you cost basis In this trade the fair market value (in USD) of 0.10 BTC when initially purchased. In January 2021, 0.1 Bitcoin was valued at $4000. In February, 0.1 BTC itself was worth $5,000 (the amount you spent to get fan tokens). This $5,000 is your sales proceeds.
The difference between sales revenue and cost basis is your capital gain in that trade. In this case, you will be taxing $1,000 at a short-term rate because you sold before you held bitcoin for at least 12 months. In the United States, short-term capital gains tax rates range from 10% to 37%, depending on many factors (eg, your enrollment status, your adjusted gross income, etc.).
Do you pay taxes on personal tokens?
Typically, personal tokens are ERC-based which are issued by individuals in order to obtain funds to support their endeavours, jobs, projects, etc. Similar to the fan token, the trend of the personal token is growing, and some people are “investing in others” with this option.
How are personal tokens taxed? The personal token is just like any other cryptocurrency, and therefore it is considered the same for tax purposes. In this case, if you sell a FIAT personal token or other cryptocurrency, you will have a US taxable event. Gains/losses will be calculated exactly as in the above example for fan tokens. Although this is a very new trend, please be aware of the tax implications in the US when trading these tokens.
Do I Pay Taxes If I Purchase Cryptocurrency To Earn Fan Tokens?
In the United States, receiving rewards through crypto staking is a taxable event, subject to income taxes.
When new tokens are launched on a platform like Binance, users get the chance to share more popular cryptocurrencies (for example, BNB) to get new tokens for fans at the base price before the public launch.
If you bet on any cryptocurrency and win bonuses (new tokens), you will have to determine the fair market value (in US dollars) on the token at the time of receiving it. Each time you receive staking rewards, you need to select their FMV. All of these bonuses (the total value of all FMVs) must be reported on your income tax return as ordinary income.
How to report taxes on fan codes?
In the US, you are subject to capital gains taxes when trading fan tokens. Here’s how to report fan codes for taxes:
Import premium fan deals with the help of a crypto tax software such as CoinTracking.
Determine your fair market value (in USD) and your cost basis on each of your fan token deals.
Identify and report the capital gain/loss on each trade.
In the US, cryptocurrency trades are easier to report using crypto tax software such as CoinTracking. After calculating your gains/losses on each trade, you will need to report each transaction on Form 8949 of your tax return.
If you earn fan tokens through staking, you will need to determine the fair market value (in US dollars) when you received them and report this income on your tax return for the year.
Learn more about how Report your crypto taxes.
Best Fan Tax Calculator: CoinTracking
The best crypto tax software to import and track your fan token trades is CoinTracking.
You can import your trades using CSV or API, track your gains/losses, and generate tax reports according to your preferred method of accounting.
In addition to fan codes, CoinTracking is the complete crypto tax solution for:
Moreover, CoinTracking can easily categorize all your earnings from yield farming, liquidity pools, cryptocurrency storage, and much more.
Error Free Fan Code Taxes: Complete US Coin Tracking Service.
CoinTracking also offers a full service for US traders. A crypto settlement tax expert from Polygon Advisory Group, a leading US tax firm, will review your CoinTracking account, help fix any errors, and ensure your crypto tax reports are submitted flawlessly.
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This post is part of the Crypto Taxes AMA series. Follow the weekly AMAs on Twitter as our expert CPA Sharon Yip answers your crypto tax questions. You can download 35+ AMA Crypto Tax Report for free.
Disclaimer: All information provided above is for informational purposes only and should not be considered professional, legal or tax advice. You should do your own research or consult with a professional financial advisor when investing.