Donating Cryptocurrency for a Tax Break

Whether you’re looking for a charitable deduction or for ways to reduce your capital gains taxes, donating cryptocurrency is an option.

This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.

Can cryptocurrency be donated?

You can donate almost anything, including cryptocurrency. It’s similar to donating cash, stocks, or old furniture.

Of course, the charity has to be willing to accept cryptocurrency donations. Some will accept direct donations, while others will say they’re not set up to accept donations in cryptocurrency and ask you to make a cash donation instead.

Is donating cryptocurrency tax-deductible?

A cryptocurrency donation falls under the charitable deduction rules. If you itemize deductions and otherwise qualify for a charitable deduction, donating cryptocurrency to charity is generally deductible.

Your tax deduction will generally be equal to the fair market value of the cryptocurrency at the time of the donation. For example, if you donate Bitcoin worth $5,000, your charitable deduction is equal to $5,000.

Don’t forget there are limits on your total charitable deductions each year depending on your income. If you donate more than the limit, you can’t deduct the extra in the current year but may be able to deduct it in the future.

Do you have to pay taxes on the cryptocurrency you donate?

When you donate cryptocurrency, you may still owe taxes depending on how you got the cryptocurrency.

For example, if you receive cryptocurrency from mining or as payment for your services, you will still need to report that income and pay income taxes on it even if you donate it immediately upon receiving it. The charitable deduction can offset your taxes, but it doesn’t mean you don’t have to report the income.

See Cryptocurrency Taxes to learn more about when you need to pay taxes on cryptocurrency to charity.

Capital Gains Tax Exception

There is a special rule on capital gains taxes when donating crypto directly to charity. You do not need to report or pay capital gains tax on unrealized capital gains.

For example, you bought a Bitcoin at $1,000 and donated it at $20,000. At the time of the donation, you had an unrealized capital gain of $19,000. As long as you give the Bitcoin directly to a qualifying organization, you don’t need to realize that gain or pay taxes on the $19,000.

However, if you sell cryptocurrency at a gain and then donate cash to charity, you will have to pay capital gains taxes on that gain. The key is that you have to give the charity the actual cryptocurrency.

Note: The charity does not have to pay capital gains taxes on what you donate. You’re not passing your taxes on to the charity, so don’t feel bad about using this option.

It’s a common move for people who want to make donations to donate assets with a large unrealized capital gain to help manage their capital gains taxes.

What if a charity doesn’t accept cryptocurrency?

If a charity doesn’t accept cryptocurrency and you don’t want to sell and give cash because of the capital gains tax, a donor-advised fund may be an option.

A donor-advised fund is a special type of investment account that you can use to make charitable donations. When you put money into a donor-advised fund, it counts as a charitable contribution.

You receive the charitable deduction and don’t have to pay tax on unrealized capital gains.

Once your cryptocurrency is inside of the fund, you can generally sell it without having to pay any taxes. You can then direct the donor-advised fund to make a cash contribution to the charity that wouldn’t accept donations in cryptocurrency.

Is there a charity cryptocurrency?

There are several lesser-known coins that claim to support charity. These coins would typically be similar to investing in ESG mutual funds or ETFs.

Socially responsible investing generally doesn’t qualify for the charitable deduction, because you can still get your investment back for your own use, and you also receive the benefit of dividends and capital gains.

You can still take the usual deductions if you donate a charity-focused coin to a qualifying organization.

How do you donate cryptocurrency to charity?

The process for donating cryptocurrency is similar to making a cash donation. Just like some charities may or may not be set up to accept credit cards, the charity will need to be set up to accept transfers from a wallet or cryptocurrency payment service.

Make sure you get a receipt for your donation. If you donate coins, it’s best if the receipt shows the fair market value in cash not just the number of coins.

If your receipt only shows the number of coins, you may need additional proof of the fair market value such as the price offered on a major cryptocurrency exchange at the time of your donation.

Does GoFundMe take Bitcoin?

GoFundMe.com does not accept crypto donations. Keep in mind that many crowdfunding campaigns are not eligible for a charitable deduction when they’re to individuals or non-qualifying organizations.

GoFundMe does have its own charitable organization that is a registered 501(c)(3) non-profit organization and does accept crypto donations.

How do I receive Bitcoin donations?

If you run a non-profit organization, there are two main ways you can accept donations.

One is setting up a wallet or other account and giving donators your transfer information. This allows you to hold cryptocurrency until you decide to sell it, similar to how you might hold stocks for future growth.

Another option is to use a payment processor that will immediately convert the cryptocurrency to cash and transfer it to your bank account. Since your donors are still giving cryptocurrency, it will still count as a direct donation that they won’t have to pay capital gains tax on.

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