Cryptocurrency Donations: A Tax-Savvy Way to Give Back
As the holiday season approaches, many individuals are looking for ways to give back to their favorite charities. One often overlooked option is donating cryptocurrency, which can provide a significant tax break. According to Fidelity Charitable, crypto donations have seen a substantial increase in 2024, with $688 million donated through November 19.
The Benefits of Donating Crypto
Donating cryptocurrency can be a smart financial move, especially for those who have seen significant appreciation in their digital assets. By donating crypto, individuals can bypass capital gains taxes and claim a deduction based on the fair market value of the asset, assuming it has been held for more than one year. This strategy is particularly appealing for crypto investors, as digital currencies like bitcoin have seen significant growth in recent months.
Understanding the Tax Break
The tax break for donating crypto is capped at 30% of an individual’s adjusted gross income for public charities. This means that individuals who itemize their deductions can claim a significant tax break for their charitable donation. However, it’s essential to note that not all charities accept cryptocurrency donations, so it’s crucial to research and confirm before making a transfer.
The Complexity of Crypto Donations
While donating crypto can be a tax-savvy move, it’s often more complicated than donating other assets like stock. Experts warn that individuals must follow specific IRS guidelines to ensure their deduction is valid. This includes obtaining a qualified appraisal for digital assets worth more than $5,000 and filing the necessary forms with their tax return.
Donor-Advised Funds: A Simplified Solution
For those who want to donate crypto but are unsure about the process, donor-advised funds can provide a simplified solution. These investment accounts allow individuals to receive an upfront deduction and transfer funds to eligible nonprofit organizations later. Many large donor-advised funds are equipped to accept digital currency, making it easier for individuals to give back.
Expert Insights
“Donating crypto to charity is similar to giving other types of property, but there are some pitfalls,” says certified financial planner Juan Ros. “It’s essential to understand the IRS guidelines and follow them to the letter to ensure your deduction is valid.”
Kyle Casserino, vice president and charitable planning consultant for Fidelity Charitable, notes that crypto investors may find donating digital assets particularly appealing due to their significant appreciation. “Bitcoin and other coins could be the most highly appreciated asset in their portfolio,” he says.
Informed Giving
As the holiday season approaches, individuals who want to make a positive impact while also minimizing their tax liability should consider donating cryptocurrency. By understanding the benefits and complexities of crypto donations, individuals can make informed decisions about their charitable giving.
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