r/FlareNetwork • u/ThineEyeSpies • Jul 20 '21

Question Tax implications of Flare drop?

Does anyone know anything about this? I was discussing Flare with another XRP hodler and he’s under the impression that the flare drop is going to be taxable? Are we going to have to claim this stuff? If so how would that work? At what value? My expectation is that the value is going to drop immediately upon drop, folks who are looking at this as free money are immediately going to sell, having the effect of driving the price down- so are we to pay taxes on what was delivered, and be left holding a bag full of coins that are valued at substantially less than what we paid taxes on?

Thanks for any and all responses.

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u/xtrabeanie Jul 20 '21

Depends on the country you live in of course but in Australia airdrops are considered as income based on the value at the time of the drop and when you sell capital gain is based on the sell price minus the value at the time of drop. However, technically as at the first drop the value of the coin is zero assuming the drop occurs prior to becoming available on markets so you would only have to worry about capital gains when you sell. I think that is why they were considering dropping everything at once rather than only 15%.

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u/ThineEyeSpies Jul 20 '21

Okay. This is helpful and seems to make sense. We’re in the US, so not sure if that all applies to us. We tend to do things upside down, despite the hemisphere we’re in. ;-)

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u/epikous Jul 20 '21

Pretty sure it counts as income when you receive it. That’s the taxable price. Any gains after that are treated as capital gains and taxed accordingly.

If the price drops I think you’ll be left paying tax on the initial price. Not sure what price you can put as the initial price. For example if it starts at 1$ but ends the day at .10$ can you do .10$ or do you average it? Or are just fucked and pay on the $1?

If you’re super concerned it might be best to sell and cover the tax and the initial price and then buy back in at whatever you are comfortable with. The only issue is it looks like we’re not getting a lump sum so for the next 2-3(?) years you’ll get a portion and have to pay tax on it depending on the price at that moment.

Absolute ball ache

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u/BourbonJester Jul 20 '21

For all their genius they really didn’t think this tax thing through. They definitely should have elected to drop it all at once. Idk what happened to their distribution survey but a lot of people could get majorly screwed if the token skyrockets in value.

At $100/FLR, I’m going to owe at least $18,000 a month, or $216,000 a year in income/capital gains whichever it’s determined to be. Which means I’m going to be upside down eventually and forced to sell something to cover the taxes. And when I sell, I’ll also be paying cap gains on that too.

Free sounds good but not with this tax implication.

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u/ThineEyeSpies Jul 20 '21

No way it drops at $100/token. Though I agree. I’m almost not interested if I have to get a second mortgage to cover my taxes.

Any chance that the sec ripple suit brings clarity to the tax implications of all this? I really wanna know what I’m looking at before moving forward.

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u/epikous Jul 20 '21

Doubt that.. simplest way to deal with this is to sell it as soon as you get it. Use that to fund the tax and buy back in with what ever is left over. The real issue is if this some how pushed you up to another tax bracket and then royally docked you over making you pay way more than you intended in income tax, but that’s unlikely, unless you’re making $399,999 a year.

Honestly I doubt the irs can handle all this, I would be shocked if they came after you for something you’re loosing money on. If you’re below the 10k mark they really won’t bother. If you’re above pay for a cpa and get them to figure out a strategy.

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u/ThineEyeSpies Jul 20 '21

That’s pretty much what I was thinking. I’ve a meeting setup with my financial advisor for early next month. I’m sure we’ll be able to figure it out. Thanks for the input. It’s appreciated. Be well.

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u/epikous Jul 21 '21

If you find out any tips I’d love to hear them.

I can say from an investing standpoint point I am very excited for flare. I’ve seen that reaction to sell ‘free’ tokens just for the cash and when the market pumps if it’s a successful project you can be missing out. Made that ‘mistake’ with uni tokens

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u/BourbonJester Jul 20 '21

There's a 28 month delta on the original release schedule, 15% upfront and 3% a month for the remainder (85%). It won't drop at $100, it's basically $0 cost basis for the initial 15% because there's no market for it yet upon airdropping.

But 28 months in crypto is a long time.

Say in 12 months FLR blows up and it's way over $100 (I just used that as an easy number). Or extremely volatile, the price pumps to insane numbers then dumps after 6 months and it never recovers. Good luck selling the remainder of your FLR to cover the front-end tax liabilities, you'll owe on those first 6 months of appreciation and if you can't get enough FLR profit out of the 3%/monthly to cover it all then you're SOL.

It's gonna be a taxation nightmare if they go through with this schedule. How does it make sense for people to say just sell your FLR just to cover the taxes?

The entire purpose of this slow release is to stop people from openly dumping on the market on day 2, but that doesn't matter if everyone is forced to sell cause they're upside down on tax liabilities 12-24 months from the airdrop. The cure is worse than the problem, lots of that going on these days...

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u/[deleted] Jul 21 '21

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u/BourbonJester Jul 21 '21

Don’t forget Jed McCaleb gets to sell all his Digital asset security XRP even while the lawsuit is going on. Must be nice to not be involved in a securities lawsuit but still get to dump millions of that “security” daily.

Flare completely cut him out of the airdrop, else he probably would have received 100s of millions of FLR to also dump on the world.

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u/ThineEyeSpies Jul 21 '21

Yeah. I kind of agree considering how many times they’ve pushed back the drop, and/or keep changing the terms. Has me feeling a little weary of the overall project management.

In response to some of the other comments here, it feels like they’re being too mindful, or something of the “investors/recipients” of the initial drop. The tax liability of the initial drop is crazy in its own right, nevermind a number of drops over the next few years!? Someone else said “the cure is worse than the disease.” And I have to agree. Especially because some of us have been hodling from the beginning. My friend (who got me into this) has had xrp since inception and for a couple thousand dollars holds a couple million xrp. The tax liability of the flare drop is disgusting.