If you make 40,000 yuan from currency speculation, you have to pay 130,000 yuan in taxes. This is the American tax law that Musk is satirizing.

Author: Penny, BlockBeats

On January 3, Musk posted on his social platform: "The customer purchased a cumrocket worth $7,000 and pledged it for 3 months to earn 6,900%. They then sold it and withdrew the profits to invest in NFTitties, but the development After ruging the project, they only managed to liquidate 10% of the funds. Can customers deduct the gas fees for minting to balance out short-term capital gains taxes?"

To really understand what Musk is satirizing and why he has repeatedly dissed the IRS, BlockBeats found a professional tax accountant from TaxDAO, which has been providing professional crypto-asset financial management software and services in the Web3 field since 23 years. Crypto financial and tax consulting services, and recently developed FinTax, a professional crypto asset financial and tax management software for both B-side and C-side, using AI Agent to help users solve their crypto-finance and tax-related needs in one stop.

Through their explanation of U.S. tax law and calculations using the numbers provided in the figure as a case study, we can further explain the current status and future of U.S. crypto taxation.

Interpretation of pictures and texts: An unreasonable tax story

First, let’s interpret what kind of sad story the picture tells:

This is an example of calculating taxes on cryptocurrency investments. In this example, the tax calculation can be broken down into three stages. The first stage is pledged income, which is taxed according to ordinary income in personal income tax. It is a progressive tax rate with a tax rate gradient from 10% to 37%. The second stage is for investors to use the earned pledge income to mint NFT. This 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 the right to control the crypto assets (investor in the picture (Having sold devalued crypto assets), the losses can be deducted before tax, but because this is an investment behavior, only capital gains tax can be deducted. Depending on the marriage situation, etc., up to US$3,000 can be deducted. Ordinary income.

According to the situation in the picture, we first assume that the customer is a single person, and the pledge income is released in one lump sum at the expiration of three months. When the pledge income is just received, the customer sells it all and uses it for Invest in NFT projects without any other income. Then, the taxes 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 7000*6900%=483000 US dollars. According to IRS regulations, this part of the income is ordinary income rather than capital gains.

(2) The amount of investment in NFT will be 7000*7000%=490000 US dollars.

(3) After investing the profits from crypto assets into the NFT project, due to Rug Pull, it could only liquidate 10% of the funds and lost 90% of the funds, which is a loss of 490,000*90%=441,000 US dollars. Because the funds have already been liquidated, the loss is realized and meets the criteria for a deductible capital loss.

The capital loss will first be used to offset similar capital gains. In this case, there is no capital gain caused by the increase in currency prices, so the capital loss of $441,000 cannot offset the capital gain. It has been assumed that the client is single. According to IRS regulations, this part of the capital loss can be offset by up to $3,000 of ordinary income in that year. In addition, the ordinary income tax exemption limit for single people is $13,850. Therefore, the client’s taxable ordinary income = 483,000-3,000-13,850= $466,150. According to the laddered ordinary income tax rate table, it needs to pay 11000×10%+33725×12%+50650×22%+8672524%+49150 32%+（466150-231250）*35%=1100+4047+11143+20814+15728+82215=135047 Dollar.

So from the above calculation, we can see that after a series of financial activities, the investor only made a profit of US$50,000 (which also included a principal of US$7,000), but he needed to pay up to US$130,000 in taxes that year. This The example accurately satirizes the unreasonableness of the U.S. encryption tax law. It is no wonder that Musk has repeatedly dissed the IRS bill.

Crypto tax disputes: constant cutting and chaos

Why Musk has been dissatisfied with the U.S. crypto tax for a long time. FinTax tax analysts analyzed the following two reasons:

1. U.S. taxation itself is complex, each region has its own regulations, and compliance costs are high, almost 10 times that of China;

2. Since 2023, the United States has introduced a targeted tax bill in the field of encryption, but it does not take into account the characteristics of the encryption industry. It still starts from the perspective of the traditional industry. The legal aspect itself may be somewhat unreasonable; even if the legal basis itself is reasonable, However, since 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 very typical problem. Some taxpayers’ businesses make money and some lose money. However, these two profitable and money-losing businesses cannot offset each other in a specific tax scenario, so there is There may be an embarrassing situation where you make no money in the end, but still have to pay a lot of taxes. A similar case is the dispute between the Jarretts and the IRS over whether taxes should be paid on the pledged assets.

On the other hand, due to its decentralized and anonymous characteristics, cryptocurrency has also become a tool for some people to evade taxes. This type of case has also become the most common dispute in the encryption field.

Take the famous "Bitcoin Jesus" case as an example. The protagonist of the case, Roger Ver, was born in Silicon Valley in the United States in 1979. He began investing in Bitcoin in 2011. Because he actively promoted the application and value of Bitcoin, it promoted its early development. Popularized and accumulated huge influence in the field of crypto assets, it was dubbed "Bitcoin Jesus" by the media and crypto community.

In 2014, Roger Ver obtained citizenship of the Federation of St. Kitts and Nevis and renounced his U.S. citizenship shortly after. Under U.S. tax law, individuals who renounce citizenship are required to fully declare capital gains on their global assets, including Bitcoin holdings and fair market value. The IRS believes that Roger Ver concealed and underreported the value of his personal assets before renouncing his citizenship. After renouncing his citizenship, he will obtain and sell approximately 70,000 Bitcoins from companies in the United States he controls, earning nearly US$240 million in income. This resulted in the company evading at least $48 million in taxes due.

In this regard, the IRS mainly made two accusations: first, Roger Ver failed to comply with exit tax regulations; second, Roger Ver violated his tax obligations as a non-U.S. tax resident.

Roger Ver’s case win rate can be affected by a number of factors. On a favorable note, his legal team argued that the tax law’s tax provisions for crypto-assets are unclear, adding to the defense’s argument that there are loopholes in the tax system. They also accuse prosecutors of selective enforcement, which could undermine the legitimacy of IRS prosecutions if sufficient evidence is provided. At the same time, it is particularly noteworthy that the Trump administration intends to end the strict supervision of crypto assets. This political attitude may bring a turn for the case. However, the disadvantage is that the prosecution has a large amount 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 for tax evasion crimes.

The Bitcoin Jesus case has sounded a wake-up call 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 continuing to reduce the space for investors to avoid tax. For investors in the crypto industry, tax compliance has become a critical issue that cannot be avoided.

Taxes on the Rich: The Sword of Damocles for the Crypto Industry

In addition, the series of "corporate taxes" and "rich people's taxes" introduced when Biden first took power really caused Musk to bleed a lot.

After Biden took office in the White House in 2020, he launched multiple rounds of large-scale infrastructure projects in order to realize his political ambitions. High spending must be supported by high taxes. American companies and the wealthy class will bear the brunt of paying high taxes to pay for this plan. There is no doubt that Musk will be "operated" by Biden. When announcing the 2023 budget, Biden proposed a new tax plan for the wealthy, levying a 25% minimum income tax on citizens with a net worth of more than $100 million, including standard tax payable and "tradable assets" (including stocks) , bonds, mutual funds and other securities, etc.), the annual return on the total value. According to a report published by ProPublica in 2021, Biden's tycoon tax will cost technology giants such as Musk $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 largest single tax bill paid by an individual in U.S. history.

Under the new regulations, the U.S. capital gains tax will reach a record high. The source of the picture is from the U.S. Department of the Treasury.

After raising the fiscal year 2025 budget to $7.3 trillion, Biden again proposed a tax on unrealized gains and plans to tax unrealized gains on trusts, corporations and other non-corporate entities that have not had a recognition event in the past 90 years. Gains are taxed. Taxing unrealized gains means that even if an individual or business (with a net worth of more than $100 million) holds tradable assets such as stocks and bonds that are not sold, they still need to pay a minimum income tax of 25% when their value increases taxes.

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 pursue a tax policy that "will destroy the American economy." "If someone injects capital into your startup at a valuation of $1 billion, and you have a company of 50 % of the shares, you will immediately incur $100 million in tax liability... All American startups will go bankrupt, and no one will want to start a business in the United States." In the latest podcast episode, the two founding partners of A16Z also expressed the same view. This bill is like a shaky sword of Damocles hanging over the heads of start-ups. Huge taxes may deliver a fatal blow at any time, restricting the development of entrepreneurship and investment.

David Sacks said at a technology conference at the beginning of the year that this tax may kill the startup industry's system of providing stock options to founders and employees, saying that "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 startups. These companies are often engines of economic growth and innovation, but they rely on investors willing to take risks for future returns. But when unrealized gains are also included in taxation, investors will no longer favor growth-oriented businesses because their valuations tend to be more volatile than those of larger, more established companies.

What’s the future of crypto tax law?

Since the inception of the cryptocurrency market, the issue of taxation of its transactions has been a point of contention. 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 if the enthusiasm for currency speculation is high, as in South Korea, the authorities have been trying to regulate the encryption field through high taxes. This not only involves the game between regulatory authorities and the market, but also the competition between the Democratic Party and the National Power Party for the right to speak. .

The Democratic Party of Korea has long planned to impose a 20% tax on cryptocurrency gains (22% is a local tax). It 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. January 1, 2025. Following a press conference on December 1, 2024, the tax collection was postponed again to 2027. The ruling National Power Party also proposed that the implementation time be postponed to 2028.

But overall, South Korea has adopted a more cautious attitude on the issue of cryptocurrency taxation and has not imposed mandatory supervision on the market. On the one hand, it provides time and space for the market to develop naturally. On the other hand, it also provides South Korea with a valuable window period to observe the effect of policy implementation in other countries and global regulatory trends. Based on summarizing the experiences and lessons of others, it establishes a A more complete tax system.

The United States’ attitude towards the encryption market has been improving since Trump came to power. From the Chairman of the SEC to the Secretary of the Treasury to the overall coordination of the “Crypto Czar”, the Trump administration’s “Encryption Group” not only represents an important policy adjustment, but also heralds a major turning point for the U.S. cryptocurrency industry. However, FinTax tax accountants have a conservative view on the government's attitude towards taxation. They believe that although Trump promised many favorable policies for the encryption industry before he came to power, and will continue to roll out policies in the future, the taxation level will only become more stringent. . Because Trump’s original intention to support the encryption industry is to recognize the important role of the encryption 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. Therefore, crypto taxes will become increasingly clear in the future, and tax collection and administration will develop in a more stringent direction.

Musk’s satirical picture drove a currency crazy, and also left new imagination in the encryption field. In the 2025 crypto tax system released by the U.S. Department of the Treasury, rules related to DeFi and non-custodial wallet providers have been temporarily shelved, which also shows that the U.S. government is cautious about formulating crypto tax policies. In the future, the U.S. tax law still has a long way to go in terms of the adaptability of tax policies and the supervision of tax evasion and avoidance. It is expected that while the encryption industry is galloping forward like a wild horse, there will also be a strong The reins guide it in the right direction.