You can help those in need and reduce your tax bill simultaneously by donating crypto. There’s never been a better reason to become a crypto philanthropist. But you’ll need to follow a few rules to make sure your crypto donation is tax deductible. We’re looking at everything you need to know about donating crypto and taxes.
Where can I donate crypto to charity?
Thousands of charities around the world now accept crypto. Some well-known names include:
Many of these are thanks to the amazing work of The Giving Block
This project is making it easier than ever for crypto investors to donate to worthy causes - navigating the many challenges nonprofits face in creating a platform to accept crypto donations. So far, they've helped more than 1,000 registered charities so they can accept cryptocurrency donations.
The majority of charities will only accept popular cryptocurrencies - so mainly Bitcoin or Ether. Although there are a couple of clever animal rescues accepting DOGE.
Why donate crypto to charity?
If you’re not convinced by the warm, fuzzy feeling you get from helping those in need - how about crypto donation tax benefits?
Donating crypto is tax free according to IRS guidance. In other words, donating crypto is not a taxable event under Capital Gains Tax. So you won’t realize any gain or loss when donating crypto.
In even better news, if you donate crypto you can claim an itemized charitable deduction - provided you’ve donated to a qualified charity.
A qualified charity in this instance needs to be a registered nonprofit that is tax exempt. So donating to things like a crowd funder or gifting to a friend in need would mean you don’t qualify for the charitable tax deduction. You can see a full list of qualified charities here.
This isn’t the only rule either.
IRS itemized charitable deduction
To qualify for the itemized charitable deduction - you need to give to a qualified charitable organization and also follow a couple more rules. This includes:
- Political organizations and candidates do not qualify.
- You cannot receive a benefit in return for your donation - for example, merchandise or tickets. If this is the case, you can only deduct the amount that exceeds the fair market value of the donation.
- To claim a deduction for contributions of non-cash donations, including crypto, worth $250 or more you must have records from your crypto exchange or written acknowledgement of the donation from the organization.
If you meet these requirements, you can claim a percentage of the fair market value of your crypto on the day you donate it as your tax deduction.
The US doesn't recognize crypto as cash - instead, it's viewed as property. This means any crypto donations you make - including stablecoins - will be considered to be non-cash donations.
Why does this matter?
Because there is a significant difference in the tax treatment of charitable donations depending on whether they are cash or non-cash.
- If you donate cash to a qualified organization, you can deduct the full value of the donation up to 60% of your adjusted gross income (AGI). Any unused amounts can be carried forward to the following 5 tax years.
- If you donate property, you can deduct between 20% and 50% of your adjusted gross income - the amount depends on the type of organization.
When should you donate crypto to get the best tax benefits?
To get the largest tax deduction from your crypto donation - you’re best of donating crypto that you’ve held long-term (for more than a year). This crypto has usually appreciated in value so you’ll avoid the large Capital Gains Tax bill and be able to deduct the fair market value of the crypto at the time of the donation.
Don’t worry if you have no long-term hodls, short-term appreciated assets can also be donated and they’ll let you avoid the higher short-term Capital Gains Tax rate. So even if your asset hasn’t appreciated as much in value, you can still avoid the Capital Gains Tax and deduct the fair market value of your crypto at the point you donated it.
When it comes to assets that have depreciated in value - you can donate these if you wish. However, you can also use them for tax loss harvesting. In general, tax loss harvesting comes with bigger benefits for your tax bill.
As well as the above, for 2021 there was an enhanced deduction available of up to 100% of AGI for cash donations to qualifying organizations. This was a temporary measure as part of the CARES act and the standard deduction rules apply again from 2022. Because of this - taxpayers donating in the 2021 financial year may benefit from cashing out their crypto first before donating in fiat - depending on the potential Capital Gains Tax owed at the point of cashing out.
How do you report a crypto donation to the IRS?
If you want to claim an itemized charitable deduction, you’ll need to itemize any deductions on Schedule A and file it along with your Form 1040.
If your total deduction for all non-cash contributions for the financial year is more than $500, you’ll also need to fill out Form 8283 Noncash Charitable Contributions and file it alongside Form 1040 and Schedule A.
If you’re donating a group of similar items - like a variety of cryptocurrencies - valued at more than $5,000, you’ll need to fill out Section B of Form 8283 as well. This section requires appraisal by a qualified appraiser in most instances.
What about crypto donation taxes in the rest of the world?
Though we’ve focused on the US, it’s generally good news for crypto investors around the world if they’d like to donate crypto to a worthy cause. Donating crypto to a registered and qualified charity is never taxed and it is often tax deductible. For example:
- UK: Donating crypto to a registered charity is tax free. If an individual donates crypto to charity, they are entitled to Income Tax relief on the donated amount.
- Australia: Crypto donations work the same as regular donations - they're tax deductible if you're donating to a registered charity.
- Canada: Crypto is seen as a gift in kind and subject to the deemed fair market value rule in some circumstances. Any increase in value may be subject to Capital Gains Tax.
How Koinly crypto tax calculator can help
Koinly crypto tax calculator helps you calculate all your crypto taxes including your capital gains, losses, income, expenses and more.
All you need to do is sync all your crypto exchanges and wallets with Koinly using API or by importing a CSV file of your transaction history, then Koinly does the rest.
You can tag your donations in Koinly crypto tax calculator by editing your transaction. Just find your donation transaction in Koinly, select the three dots on the right hand side then hit edit transaction.
Then from the new left hand menu, change your transaction type to a donation.
This means when you generate your Complete Crypto Tax Report in Koinly, your crypto donations will be separated out and you can easily identify the amounts for your tax deduction forms.