Learn how to optimize charitable contributions with cryptocurrency while navigating IRS requirements and potential pitfalls.
Crypto Donations Surge in 2024
Cryptocurrency gifts to charities have grown significantly in 2024, with Fidelity Charitable reporting $688 million in digital asset donations by November. This marks a dramatic increase compared to $49 million in all of 2023. Such donations, particularly in highly appreciated cryptocurrencies like Bitcoin, offer notable tax advantages for donors.
Advantages of Donating Crypto
Donating cryptocurrency can yield dual benefits: bypassing capital gains taxes and claiming deductions based on the asset’s fair market value. To qualify, donors must itemize deductions and have held the crypto for over a year. According to the IRS, charitable deductions for public charities are capped at 30% of adjusted gross income.
Kyle Casserino from Fidelity Charitable highlights this as a lucrative strategy for investors holding assets like Bitcoin, which has surged nearly 120% year-to-date.
Challenges and Considerations
However, crypto donations can be complex. Not all charities accept digital assets. A survey by The Giving Block revealed that only 56% of major U.S. charities are equipped to handle such donations, though many donor-advised funds are well-prepared to facilitate them.
Donor-advised funds allow donors to claim an upfront deduction and allocate funds to nonprofits later. While most funds sell the crypto, some offer options to retain digital assets within the fund.
IRS Regulations and Appraisal Requirements
The IRS mandates a “qualified appraisal” for digital asset donations exceeding $5,000. Donors must file Form 8283 and adhere strictly to appraisal criteria to avoid jeopardizing their deduction in case of an audit. For contributions over $500,000, a copy of the appraisal must accompany the tax return.
Andrew Gordon, a tax attorney, emphasizes the importance of meticulous documentation, saying, “You’ve got to support the deduction through the qualified appraisal.”
Maximizing Your Giving Impact
Crypto holders should explore donating their most appreciated assets to maximize tax benefits. Verifying a charity’s ability to accept digital donations and consulting with financial advisors ensures compliance and maximized impact.
Disclaimer:
The information provided on 13Desk is for informational purposes only and should not be considered financial advice. We strongly recommend conducting your own research and consulting with a qualified financial advisor before making any investment decisions. Investing in cryptocurrencies carries risks, and you should only invest what you can afford to lose. 13Desk is not responsible for any financial losses incurred from your investment activities.
