Fan tokens are rising in popularity, with many people trading 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 crypto traders to make a profit.
Today, we cover all the tax implications of trading fan tokens in the US.
In this article:
Do you pay taxes when trading fan tokens?
Yes. In the US, if trading fan tokens is a taxable event, subject to capital gains taxes. Why? Trading Bitcoin or any other crypto for a fan token is a crypto-to-crypto trade, taxable in the US. If you sell a fan token for FIAT, you’ll also have a taxable event in the US, subject to capital gains taxes.
Let’s look at an example.
Let’s imagine you’re a big Barcelona FC fan. In January 2021, you bought 1 Bitcoin at $40K. In February, you want to buy $BAR fan tokens. In February, 1 Bitcoin is $50K, and you spent 0.1 BTC ($5,000 worth of BAR tokens). In that case, you bought 416.66 $BAR fan tokens since each $BAR was $12.02. This transaction is a taxable event that can be broken down into two sub-events:
The first transaction we have to look at is the purchase of Bitcoin;
The second transaction is the sale of Bitcoin for a fan token (crypto-to-crypto trade)
When you sell bitcoin, you have a taxable event. Your cost basis in that trade is the Fair Market Value (in USD) of the 0.10 BTC when you initially purchased it. In January 2021, 0.1 BTC was worth $4,000. In February, that same 0.1 BTC was worth $5,000 (the amount you spent to acquire the fan tokens). Those $5,000 are your sales proceeds.
The difference between the sales proceeds and the cost basis is your capital gain in that trade. In this case, you’ll have a $1,000 gain taxed at a short-term rate because you sold before holding Bitcoin for at least 12 months. In the US, short-term capital gains tax rates range from 10% to 37%, depending on many factors (e.g., filing status, your adjusted gross income, etc.).
Do you pay taxes on personal tokens?
Personal tokens are usually ERC-based tokens that individuals issue to gain funds to support their endeavors, careers, projects, etc. The personal token trend is rising similarly to the fan token, and some people are “investing in others” through this option.
How are personal tokens taxed? A personal token is just like any other cryptocurrency, thus considered the same for tax purposes. In that case, if you sell a personal token for FIAT or another crypto, you’ll have a taxable event in the US. The gains/losses will be calculated exactly the same as in the example above for fan tokens. Even though this is a very novel trend, please be aware of your tax implications in the US when trading these tokens.
Do I pay taxes if I stake crypto to earn fan tokens?
In the US, gaining rewards through crypto staking is a taxable event, subject to income taxes.
When new tokens launch on a platform like Binance, users get the chance to stake more popular cryptocurrencies (e.g., BNB) to gain new fan tokens at the base price before their public release.
If you stake any crypto and earn rewards (new tokens), you’ll have to determine the Fair Market Value (in USD) on the token at the time you receive it. Every time you receive staking rewards, you need to determine their FMV. All those rewards (the aggregated value of all FMVs) need to be reported in your income tax return as ordinary income.
How to report taxes on fan tokens?
In the US, you are subject to capital gains taxes when trading fan tokens. Here’s how to report fan tokens on taxes:
Import your fan token trades with the help of a crypto tax software such as CoinTracking.
Determine the Fair Market Value (in USD) and your cost basis on each of your fan token trades.
Determine the capital gain/loss on each trade and report it.
In the US, reporting crypto-to-crypto trades is easier with crypto tax software like 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’re earning fan tokens through staking, you’ll need to determine the Fair Market Value (in USD) when you receive them and report that income in your income tax return for the year.
Learn more about how to report your crypto taxes.
The best fan token 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 accounting method.
Beyond fan tokens, CoinTracking is your full crypto tax solution for:
DeFi and NFT support with our ETH+DEX importer.
25+ advanced reports, including which coins offer you a tax-free rate.
Automatic capital Gains, according to 12 accounting methods (e.g., FIFO, LIFO, HMRC, ACB), accepted worldwide.
Generating complete Tax Reports in your country.
Fan token taxes with no errors: CoinTracking Full Service in the US.
CoinTracking also offers a Full Service for US traders. A crypto reconciliation tax expert from Polygon Advisory Group, a leading US crypto tax firm, will review your CoinTracking account, help fix any errors, and ensure you submit your crypto tax reports error-free.
Do you have any crypto tax questions? Check the best guides:
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NFT Taxes: The Complete Guide.
2021’s NFT guide (with taxes).
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This post is part of the Crypto Taxes AMA series. Follow our weekly AMAs on Twitter where our expert CPA, Sharon Yip answers your crypto tax questions. You can download 35+ AMA crypto tax reports for free.
Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.