A funny thing happened on the way to getting an explanation on how a hard fork would be taxed versus an airdrop. When the question went to the IRS (yes, those folks at the Internal Revenue Service), as to how either even should be treated for tax reporting, the IRS instead dumped both events into the same category: they are taxable as ordinary income.
Say what?
You read it right.
The common myth is that any selling of crypto is reported and treated as capital gains. So, it should be taxed at a capital gains rate for a short or long holding, usually 15% at its worst. However, ordinary income is the bracket that people's normal paycheck and income go into. And that tax rate varies depending on how much people have earned for the entirety of the tax period, a year for most normal folks.
So, remember that FORTH drop so many folks raved about earlier this year? That is technically an airdrop and, per the IRS issuance of Revenue Ruling Section 2019-24, it gets taxed at an ordinary income level based on the market value it was at the time you got market control of the asset.
Say what?
Yep. I hope folks made some screenshots and records of the FORTH airdrop that wonderful day; I know I did. So, if reading the above is correct, and someone got $5,000 worth of FORTH at the moment it landed in their wallet and they had control, that became $5,000 worth of taxable income. The particular tax rate that would apply will then depend on what other income the person earned for the year, ranging from the low bracket application of 10% to as much as 37%. I think I remember someone saying they got as much as $11,000 from that FORTH drop.
Ouch.
So, if you were one of the lucky ones, karma is a ***tch. However, you have six months effective June 30 to do something about your predicament. If you were smart, you cashed it out and saved the coin close to the value you got it. Put a piece of that money aside and have a nice cushion ready when it's time to do your taxes. If not, and you left it in FORTH (which is now at a measly $16.50 last I checked), you are still on the hook for the taxes.
Double Ouch!
Better start saving or planning some other tax deductions now to offset that hit come next April.
I'm not a tax expert and the above is not financial advice. This article is simply warning of a cliff ahead so you don't fall off and land on your head April 15, 2022. Good luck!
(I welcome any suggested edits or additional input the article and info as I'm every interested in the matter myself as well. Comment away!)
