Cryptocurrencies, notably Ethereum and Bitcoin, have been popular debate topics amongst investors and philanthropists alike. Several factors have contributed to the expanding global usage of virtual currencies.
As a decentralized medium of exchange, no central bank or government can influence their value or moderate their distribution, making virtual currencies indispensable to most businesses and non-profits.
Cryptocurrency has taken the world by storm, and for a good reason! It’s a fast, secure way to transfer money without having to worry about pesky things like bank fees or exchange rates. But what do you do with your cryptocurrency when you’re not using it? One excellent option is to donate it to charity! Here are four reasons why donating cryptocurrency is a great idea.
Cryptos, alongside other glamorous tech, such as NFTs, bank on blockchain technology. Blockchain allows for the retracement of donations you’ve made with crypto at any period. You could think of the blockchain as a ledger of public transactions that also permits all said transactions made on it to be stored and tracked.
No alterations are allowed on the blockchain once an entry has been made. As such, you need not worry about any form of data fraud or of your transactions being manipulated as it enjoys data protection intrinsically.
Improved Tax Efficiency
When you donate cryptocurrency to charity, you’ve made a non-taxable transaction. Cryptocurrencies are classified as property by the IRS, and as such, they cannot be subjected to capital gains tax. You do not have to pay a portion of your ROI from holding Bitcoin as tax.
That means you’ll be able to give more out to non-profits and save more on your tax return. It’s arguably the primary reason to consider when deciding whether to switch to crypto as a form of donations to nonprofits.
Low Transaction Fees
Compared to standard wire transfers, cryptocurrencies attract lesser fees and exchange costs. For example, suppose you choose to donate bitcoins, seeing as cryptos have no overhead institutions moderating their exchanges. In that case, the transaction fees incurred are significantly reduced compared to those you find with bank transfers.
Even more beneficial are the quick transfer periods the peer-to-peer feature affords you. You need never worry about wait periods or authorization requirements, and you can expect your chosen charity to receive your donations within a few seconds of your donation.
Security of Payment
You can’t just walk into some bank, guns ablaze, and steal virtual currency; you’d need to know the exact combination of words (and in the proper order, too) that makes up the electronic wallet of your prospective quarry.
Fortunately, it’s mathematically impossible to create private keys and steal crypto. While there have been reports of ambitious attacks on exchanges, the crypto scene has remained impervious to such, and you can rest assured your donations are tamper-proof. As such, when you donate cryptocurrency to Food for Life Global, one of the deserving charities out there, you need never worry about your donation getting lost with the wind.
Additional Factors to Consider as a Potential Crypto Donor
Beyond improving transparency in financial transactions regarding donations and optimizing tax efficiency, consider the following when attempting to donate to a charity:
Steer Clear Off Previous Legal Bindings
After receiving your crypto donations, public charities reserve the right to control your donated assets exclusively. The same rule applies if you donated to an intermediary donor-advised fund instead.
If you’ve previously drawn up a legal binding that would otherwise force the charity or the fund to dispose of your crypto donations in a short period after receipt, this would be regarded as a ‘prearranged sale.’ Such an arrangement could nullify the capital gains tax, making you pay the said tax.
Consult with Donor-Advised Funds
To take full advantage of the tax benefits previously described. Instead of selling your cryptocurrency directly and having the cash donated, you should donate to a donor-advised fund or a charity.
Extra Tax Features to Benefit From Crypto Donations
Based on whether they were mined or they came into your possession due to a financial transaction, the IRS regards cryptocurrencies as income and capital assets,
A crypto donation to a public charity is not regarded as a currency donation, unlike if you had otherwise paid in fiat money. That’s the precise reason why crypto capital gains are non-taxable.
Depending on how long you have had your cryptocurrency invested, you may be eligible for the following extra feature:
- ‘HODL-ing’ your cryptocurrency as an investment for more than a year and ensuring you list out deductions could qualify you to deduct the appraised market value of your total investment up to 25% of your adjusted gross income (AGI) and retry after five years.
To put this into motion, visit a qualified appraiser and obtain form 8283 to qualify for a total appraisal. Note that this only applies to crypto donations worth at least $5,000.
Common Ways Charities Accept Crypto
As the last section of our guide, we’ve decided to get you familiar with common cryptocurrency donation platforms:
Specialized Cryptocurrency Payment Platforms
The Giving Block and Engiven are just two examples of payment processors that specialize in accepting cryptocurrency donations on behalf of charitable causes for a minimal fee.
They provide additional services of holding on to cryptocurrency for the non-profits if they so wish and oversee any necessary transactions. At times, they even assist in creating marketing campaigns targeted to the cryptocurrency-verse.
Wallets are the blockchain analogies of banks; you receive, transfer, and hold crypto there. Rather than engage the services of a payment processor with a wallet, charities can take charge of their cryptocurrency management and carry out any transactions they might choose to.
Other common ways charities could explore include: engaging the services of an intermediary, such as a donor-advised fund, and processing cryptocurrency receipts with dedicated exchanges like Gemini, Coinbase, etcetera.
There are many reasons why charitable causes need our help. But the most important reason may be that they can’t do it without us. We all have something to offer, an idea or a skill set we’ve developed over time and by living in this world.
It’s up to each one of us to use what we know best for the greater good—to make life better for people who need our support. If you’re reading this article because you are curious about how you can donate cryptocurrency, then I’m glad I could provide some answers!