Want to lower your tax bill and contribute to a good cause? Consider giving a crypto donation.
As time goes on, more and more registered charities are giving donors the option to donate cryptocurrency. After all, donating cryptocurrency and other forms of property comes with real tax benefits.
In this guide, we’ll break down everything you need to know about how crypto donations are taxed and share how you can report donation deductions on your tax return.
Can I donate cryptocurrency?
Yes. You can donate to organizations with 501(c)(3) status that accept crypto donations.
Is donating crypto a taxable event?
Donating appreciated assets like crypto is one of the few instances where the IRS allows you to ‘double dip’ on tax benefits.
In most cases, disposing of your cryptocurrency requires you to incur a capital gain or a capital loss. However, donating cryptocurrency to an organization with 501(c)(3) status is
not considered a . taxable event
In addition, cryptocurrency donations can be treated as itemized deductions on your tax return and potentially reduce your income tax liability for the year.
How do crypto tax deductions work?
If you’re donating cryptocurrency you’ve held for more than 12 months, you can deduct the fair market value of your cryptocurrency at the time of the donation.
However, donating your cryptocurrency after 12 months or less means that you can only deduct your original
. cost basis
Donating cryptocurrency that is currently trading at a loss can also be treated as an itemized deduction. However, financial advisors typically recommend that you prioritize donating appreciated assets. After all, depreciated assets are eligible for
, which comes with its own tax benefits. tax-loss harvesting
For contributions worth more than $250,
to get a written letter of acknowledgment from the charitable organization. The letter should include the name of the charitable organization, the name and amount of cryptocurrency given, and whether you received any goods or services in return for your donation. you’ll be required Should I donate cash or cryptocurrency?
Not sure whether to donate cash or cryptocurrency to charity? Remember, the answer is likely dependent on your specific circumstances, and you should speak to a tax advisor before making a decision.
Still, it’s important to remember that there are potential tax benefits to donating cryptocurrency instead of an equivalent amount of cash.
Remember, you can donate your cryptocurrency without incurring a tax liability. Then, you can use your cash to buy back into your position at a higher cost basis, which can potentially reduce your
in a future disposal event. capital gain
However, it’s important to remember that for appreciated assets, your donation deduction is limited to 30% of your adjusted gross income (AGI). Meanwhile, the CARES Act increased the cash donation deduction to 100% of AGI for the 2020 and 2021 tax years. In previous years, cash donation deductions were limited to 60% of AGI.
Can crypto donations reduce my tax bill?
As noted earlier, crypto donations can be treated as itemized deductions on your tax bill. Typically, crypto donations only reduce your tax liability for the year if the total value of all of your itemized deductions is greater than the standard deduction.
Here’s a list of standard deductions by filing status.
The CARES Act did put into place temporary donation deductions for taxpayers who claim the standard deduction. During the 2021 tax year, individuals claiming the standard deduction have the option to write off $300 of charitable contributions while married couples filing jointly have the option to write off $600.
State/local taxes, real estate taxes, and mortgage interest can also be treated as itemized deductions.
For more tips on how to legally reduce your crypto tax bill, checkout the video below.
VIDEO How do I report crypto donations on my taxes?
Donations and other itemized deductions are included on Form 1040 Schedule A. With your deduction, you should also note the type of cryptocurrency you donated as well as the fair market value of your coins at the time of the donation.
If you’ve donated more than $500 of cryptocurrency to a charity during the tax year, you’ll also be required to fill out Form 8283. If you’ve donated more than $5,000 of cryptocurrency, the organization receiving the property must acknowledge receipt and confirm it’s a qualified organization by completing and signing Part IV of Section B of Form 8283.
How are crypto donations taxed in other countries?
Let’s explore how crypto donations are taxed around the world.
: Crypto donations are tax deductible. However, you may incur a capital gain if the value of your crypto has increased since you originally received it. UK : Crypto donations can be deducted if you donate to a registered charity! Australia : While crypto donations are tax deductible, donating your cryptocurrency is considered a disposal subject to capital gains tax. Canada Simplify your crypto tax reporting
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