Claimed your JTO? Time to report it to the IRS, experts say

After Thursday’s JTO airdrop causes a frenzy in crypto markets, accountants remind traders that they need to claim their new assets as income, even if they never sell

article-image

Paul Brady Photography/Shutterstock modified by Blockworks

share

Made some money off of Jito’s airdrop Thursday? If you’re a US taxpayer, you’d better report it to the IRS, experts say.

Jito, a staking project built on Solana, released its JTO token via an airdrop at 11 am ET Thursday. The claim window for those eligible is 18 months. 

By 11:45 am ET Thursday, around 30% of the airdrop had been claimed. Of the top 15 wallets who had claimed the most JTO in the airdrop, only three had sold any as of Friday morning, according to a Flipside Crypto dashboard

While holders took to X, formerly Twitter, to discuss their profits, tax experts advise airdrop recipients, at least those in the US, to be aware of their obligations. 

Read more: What to know about Jito’s $165M JTO airdrop

“The IRS has been very clear in numerous documentation that digital assets received via an airdrop are to be recognized as ordinary income once received,” said Gabriel Brin, vice president of tax and accounting product at Ledgible.

This means anyone who receives any assets via airdrop must report it as income, based on the assets’ value when received, on their tax returns for that year, even if the assets are never converted to USD or fiat currency. The income tax rate collected on the initial airdrop will follow the holder’s typical tax bracket, based on income, Brin said. 

But determining the exact moment a taxpayer received the airdrop can be complicated, Miles Fuller, director of government solutions at TaxBit, said. 

“Time of receipt is not necessarily easily defined because it depends on where you might be holding,” Fuller said. “You probably get the airdrop because you have some holdings of some underlying native coin or some other engagement, and those holdings that are the basis for you getting the airdrop could be held on something that’s on a custodial exchange or in a personally controlled wallet, and that’s important.” 

Read more: Crypto tax evasion cases are on the rise: Bloomberg

If the airdropped assets are sent to an account on a centralized exchange, like Coinbase or Gemini, the recipient may not immediately get access to these assets, Fuller said. 

“In the tax world, receipt is defined as when a user is in control over the asset, really meaning that the user would be in a position to sell, dispose or rehypothecate that asset,” Fuller said. “It’s not just a matter of saying ‘the airdrop happened,’ it’s ‘when did the taxpayer get to be in control or the asset?’” 

Read more: Jito’s JTO soars hours into airdrop, analysts say altcoin rally has steam left 

For JTO, those who used the Jito protocol prior to Nov. 25, 2023 were eligible. Users who claimed the airdrop had assets sent to the address that signed the transaction. 

The top two wallets that claimed the most JTO via airdrop each collected tokens worth around $480,000, according to network data. If these holders are single filers in the US currently making less than $578,126 in income for the 2023 tax year, this airdrop would bump them into a higher federal tax bracket. 

To prevent double taxing when calculating capital gains or losses, the value of the airdrop reported when reporting the income is used as the cost basis for determining the tax rate, Fuller said. 

Any assets received via airdrop that are later sold or traded for a profit would then be taxed based on standard capital gains taxes, Brin explained. The holding period, which would determine whether long or short term gains should be taxed, begins at the time of airdrop, he added. 


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

Hilton Metropole | 225 Edgware Rd, London

Mon - Wed, March 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience: Attend expert-led panel discussions and fireside chats Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts.

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research report - cover graphics (1).jpg

Research

In this report, we dive into crypto private market data to gather insights on where the future of the industry is headed. Despite a notable downturn in private raises, capital continues to infuse promising projects that aim to transform payments, banking, consumer experiences, community, and more, with 2023 being the fourth-largest year for crypto venture capital.

article-image

Opinion: Even though I didn’t pay for my “Diamond Hands” burger with BTC, don’t let that fool you into thinking that crypto’s development is futile

article-image

The results mark “a major positive inflection point,” one analyst says, as the exchange carries net income momentum into a crypto rally

article-image

While the slate of 10 US spot bitcoin funds have tallied $4.6 billion of net inflows thus far, half of the field is lagging the leaders

article-image

Trading volumes totalled $154 billion in Q4, including $125 billion in institutional volume

article-image

DeFi on Bitcoin is all the rage right now and Stacks is positioned to benefit

article-image

The Boston Globe reports that lawyer John Deaton is weighing a possible bid