TL;DR: As a crypto holder, you can donate crypto instead of cash to charities of your choice and receive the same tax benefits. In fact, donating crypto (rather than selling crypto into cash or donating cash) can help you avoid long-term capital gains tax and make your donation go further. Just make sure you document your crypto donations so you can count them against your adjusted gross income (AGI) to lower your overall tax obligation. You can also contribute crypto to a donor-advised fund.
What are the benefits of donating in crypto?
- Make your donation go further. Giving in crypto may potentially result in more funds going to causes you care about. For example, if you sold BTC to donate cash, you might incur federal long-term capital gains tax of up to 20% (in addition to state and local taxes). With a direct donation, you do not pay capital gains tax on the BTC, allowing you to give more.
- Track usage of your funds. Because of the nature of a decentralized ledger, several projects have sprouted up that track the usage of your donated cryptocurrency. In this way, you’re able to ensure your funds are properly allocated to the causes you believe in.
How do I claim these crypto donations as tax deductions?
Crypto donations are tax-deductible if documented correctly:
- Confirm you’re donating to a qualifying organization. Your charitable giving will qualify for a tax deduction only if it goes to a tax-exempt 501(c)(3). An organization can be nonprofit without 501(c)(3) status, so it’s important to double-check this before you donate if you want the tax deduction. (You can verify an organization’s status with the IRS Exempt Organizations Select Check tool.) Before you donate, ask the charity how much of your contribution will be tax-deductible.
- Keep a record of your contributions. Keep track of your donations, no matter the amount. That means keeping bank statements, credit card statements, and a receipt from the charity including the date, amount, name of the organization, and a statement that no goods or services were received in exchange for the donation.
Keep in mind that if the donated amount of crypto is over $5k, you’re required to have a qualified appraisal. This typically costs upwards of $5-15k. That said, there are some select providers that can appraise your crypto for a more affordable fee ($1k or under).
You can also donate certain cryptocurrencies to a donor-advised fund (DAF). Check with your DAF provider to confirm eligibility.
When it comes time to file your taxes, you can count these contributions against your adjusted gross income (AGI) to lower your overall tax obligation. Consult your Tax Advisor for more information.