I was having lunch last month with one of my favorite non-profit groups when the CEO pulled me aside to show me a novel email solicitation on his phone. The sender of the email promised to share cutting-edge expertise on how non-profits like his could boost their fund-raising efforts by taking donations in cryptocurrency.
What? Sounds crazy? Far from it.
Since that lunch, I’ve learned that charitable donations funded in cryptocurrency are far from cutting-edge. They’ve gone positively mainstream.
Scores of non-profits, and probably every donor advised fund, are now more than happy to take your Bitcoin, Ethereum or even Dogecoin donation. We’ll explain below, if you’re a cryptocurrency investor, why your next donation should perhaps be in crypto.
Donating cryptocurrency can increase the value of your gift and cut your tax bill
If you are charitably-inclined, it makes sense for you to gift cryptocurrency, or any other appreciated asset, to your favorite charity in lieu of cash because it allows you to avoid paying capital gains taxes.
Very simply, when you donate to charity an asset that has gone up in value since you bought it (what we call an “appreciated asset”), you get a deduction for the value of the gift. That deduction can reduce your taxable income and cut your tax bill. Non-profit charities can then sell the asset you gave them, and neither they, nor you, pay capital gains taxes on the growth in value (as always, talk to your tax advisor about any limitations that may apply before gifting).
This is a much better option than selling your cryptocurrency, stock or other appreciated asset, paying the capital gains tax, and then giving only what’s left. According to donor advised fund Fidelity Charitable, contributing bitcoin means your tax deduction and your charitable gift may instantly increase over 20%.
Giving smart, by donating appreciated assets to charity, gives you a bigger tax savings and gives the charity more money to carry out their valuable programs.
Gifting cryptocurrency to charity hits the mainstream
Gifts of cryptocurrency are shaking up the often staid world of charitable giving.
Fidelity Charitable, the nation’s largest donor advised fund, has received more than $274 million in cryptocurrency contributions so far this year. Save the Children, which supports child welfare activities worldwide, accepts crypto donations in scores of different currencies – as well as NFTs – thanks to its collaboration with specialized crypto giving entities and wallet custodians.
Many crypto investors have very low cost basis in their coin holdings (meaning they bought low and have seen their holdings go up considerably in value). That makes crypto an ideal asset to gift, as it lets the donor bypass capital gains taxes. The charities receiving the gift usually convert the cryptocurrency into dollars quickly, given the huge price volatility that many cryptocurrencies experience.
Who gifts crypto to charity?
Anyone who owns crypto, that’s who.
According to the Giving Block, an organization facilitating crypto gifts for multiple charities, cryptocurrency donors are generally Millennials and Gen Z donors. Almost half of Millennials prefer crypto investing to stocks, “meaning a significant percentage of Millennials have appreciated crypto they can donate each year for tax purposes.”
However, we have spoken with older crypto owners, as well. Most have substantial gains on their coin holdings, and understand how their crypto holdings can be used to further their estate planning and tax goals. through smart, tax-savvy strategies.
The Takeaway: Bitcoin and other cryptocurrencies are going mainstream. If you own crypto and want to minimize your taxes and make the world a better place, all at the same time, talk to your advisor about tax-smart cryptocurrency strategies that can help you.