The meteoric rise of cryptocurrency over the past year has left many “hodlers” with large gains in value. Since the IRS currently recognizes crypto as a noncash asset, not a currency, as soon as you attempt to take those gains you are faced with some potentially significant tax consequences. However, the IRS has also provided some avenues to minimize your tax burden while also helping your favorite 501(c)3 non-profit. Here are four reasons why I am donating my crypto:
It’s a convenient way to give
If you were to sell your crypto before donating it, you would have numerous steps involved such as moving the crypto between wallets or exchanges, converting to fiat, and then withdrawing to your bank account. Each one of those steps can be very unforgiving if you’re not paying close attention. When donating my crypto, I only need to enter a receiving address, the amount of crypto I’m donating, and I’m done. It’s that simple.
Take advantage of the Charitable Contribution Credit
When you itemize your deductions, the IRS lets you deduct the amount given to your non-profit. However, this is not a dollar-for-dollar deduction. The total amount of your deduction will equal your contribution times your ordinary income tax rate. If I donate $10,000 in crypto and my tax rate is 24%, my charitable contribution deduction would be $2,400.
Avoid the Capital Gains tax
If you were to sell your crypto for more than you acquired it, you would be faced with either a short-term or long-term capital gain. Short-term capital gains are made on assets held a year or less and your ordinary tax rate is applied. Long-term capital gains are for those held longer than a year and are taxed at either 0, 15%, or 20% depending on your income level. Using an example of someone married filing jointly, if you held your crypto for 11 months (short-term) and sold you could pay up to a 32% capital gains tax, or if you held your crypto for 13 months (long-term) you would pay 15%, or if you donated your crypto you would pay $0!
Maximizing my gift
Let’s say I had $100,000 worth of crypto, held for over a year, that originally cost me $10,000. If I decided to sell the after-tax proceeds before donating it, I would potentially owe a capital gains tax of $13,500 ($90,000 x 15%), and my donation would be $86,500. By donating it instead of selling it, I’m able to give an additional $13,500! Donating my crypto allows me to make a greater impact.
If you’d like to donate crypto to a non-profit that doesn’t accept it yet, or if you’re a non-profit interested in receiving crypto donations, I highly recommend you check out Engiven. Engiven is a cryptocurrency donation platform that is fast, secure, and simplifies the entire crypto-donation process for your non-profit.
The basic examples above are for illustrative purposes only, so please consult your tax advisor to see how different giving scenarios would impact you.