Last monthThe United States Congress increased the tax benefits for donations under the CARES law in hopes that people would donate more. Some donate money, others donate property, and a growing number donate crypto assets.
Once you’ve made the difficult decision of which charity or purpose you want to donate to, your focus should shift to your tax position. When donating crypto assets, there are certain things to consider, especially when you consider how their volatility can affect your taxes and decisions..
Which crypto asset should I donate?
Usually, A crypto donation does not trigger a taxable event for donors or recipients. After the donors have decided how much they want to donate, they must also decide what assets they want to donate. By donating assets with a lower tax base, future taxable income can be reduced or minimizedwhile the donor retains assets with a higher tax base. Corporations that are exempt from tax in the United States for their educational, charitable, or other activities (“charity”) are often indifferent to the tax base of the assets they receive. That’s because are usually exempt from income tax on assets sold to fund their charitable activities.
If the recipient of the donation is not tax free in the United States – That is, it is “no charity” – You will likely be concerned about the tax base of the asset you are given. This is because the donor’s tax base for donated assets is often – but not always – transferred to the nonprofit. So if the donor wants to prioritize their own tax position over that of the nonprofit organization, they donate crypto with the lowest tax base. On the other hand, if the donor wants to prioritize the benefits of the donation for nonprofits, he will receive the crypts with the highest tax base.
Does my crypto donation have a built-in loss?
Crypto assets have a built-in loss because their tax base is higher than their current market value. Therefore, a donor may want to sell the cryptocurrencies for cash (with a loss of capital) and then donate that money to a charity or non-charity. The donor can use this capital loss to offset any capital gains tax by transferring the same value to the charity or non-charity..
If a donor makes a crypto donation with a built-in loss to a nonprofit organization, the potential tax deduction for the built-in loss is lost. That’s because The general rule of transferring the tax base from the donor to the gift recipient does not apply to integrated loss assets that the gift recipient sells at a loss. Instead, the tax base of the goods sold by the recipient of the donation is limited to the market value of the property at the time of the donation.
Do I get a nonprofit deduction?
Individuals who list deductions may be eligible for a deduction for cryptocurrency donations they make to certain charities. The right to deduct exists when a person’s individual deductions exceed their standard deduction, ie $ 12,400 for individual taxpayers and $ 24,800 for married taxpayers. Even if a person fails to meet these thresholds, they may be entitled to a deduction of up to $ 300 due to the CARES law passed in March. The law also reduced other restrictions on an individual’s ability to deduct charitable contributions.
Frequently, The amount of a charity deduction depends on the market value of the crypto asset at the time of the donation. However, if a person donates crypto assets with short-term gains (less than a year) or cryptocurrencies that would result in normal income when sold, the non-profit taxpayer’s deduction is reduced by an appreciation of the cryptocurrency. This may limit the taxpayer’s non-profit deduction to the tax base of the specified cryptocurrency.
Does my choice between charity or non-charity accept cryptocurrencies?
More and more charities are working with payment / donation platforms for cryptocurrencies such as BitPay, Coinbase Commerce and The Giving Block to enable donations for cryptocurrencies. Even if Many of the major charities already accept donations in cryptocurrency, such as United Way, the American Red Cross, and No Kid HungryOnly about 2% of all nonprofits in the United States and Canada are said to have done so.
For those who want to continue donating crypto assets to organizations that don’t accept them, An option can be a fund advised by donors, also known as a donor fund. One of the largest donor funds in the United States is Fidelity Charitable. Accept donations in Bitcoin (BTC), Bitcoin Cash (BCH), Ether (ETH), Litecoin (LTC) and XRP. Since Fidelity Charitable and other donor funds are charities, the same considerations as in this article apply when you contribute to these funds.
After receiving the donated cryptocurrency, the donor fund can sell the cryptocurrency for cash without paying taxes. The total fiduciary value – minus fees – of the cryptocurrency sold can either grow in the donor fund or be donated to a charity of the donor’s choice (hence the reference recommended by the donor). Although donor funds have a minimum of funds / donations, they can offer additional options for those who want to donate with their cryptocurrency funds. Only Fidelity Charitable has received $ 100 million in cryptocurrency donations since 2015, according to the recently released 2019 Giving Report.
After you have decided which charity or non-charity your donation deserves, your own tax position should also be considered. Although there are some twists in the thought process, it all starts with some Basic questions about whether the cryptocurrency you donate has been valued or depreciated and the type of recipient. By considering both tax and non-tax considerations for a donation, you can maximize the overall benefits for donors and recipients, or at least enable the donor to find the right balance.
This article is for general informational purposes only and should not be considered as advice on tax, accounting or other treatment of a transaction or activity. Please consult a suitable advisor if you would like advice.
The views, thoughts and opinions expressed here are solely those of the authors and do not necessarily reflect or represent Cointelegraph’s views and opinions.
This article was written by Roger brown and Rachel Walker.
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