Crypto Donations: How to Reduce Taxes

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. 

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However, donating your cryptocurrency after 12 months or less means that you can only deduct your original cost basis. 

Should I donate crypto that has lost value? 

Donating cryptocurrency that is currently trading at a loss can be treated as an itemized deduction. 

However, financial advisors typically recommend that you prioritize donating appreciated assets. After all, depreciated assets are eligible for tax-loss harvesting, which comes with its own tax benefits.

Do I need a letter of acknowledgement? 

For contributions worth more than $250, you’ll be required 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.

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. 

What are the benefits of donating appreciated cryptocurrency? 

Appreciated cryptocurrency can be donated 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 capital gain in a future disposal event.  

It’s important to remember that for cryptocurrency and other forms of property, your donation deduction is limited to 50% of your adjusted gross income (AGI).