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Cryptocurrency Donations Are on the Rise

Cryptocurrencies like Bitcoin and Ethereum have exploded in popularity recently, with some people realizing large returns by investing in them. According to a recent report, some of these investors are in turn donating a portion of their crypto returns to charitable causes they believe in.

Leading crypto philanthropy organization The Giving Block reports that donations of cryptocurrency to charities increased by more than 1,500% last year. The average donation of cryptocurrency to charity in 2021 was $10,455, which is 82 times higher than the average charitable cash donation of $128.

More Charities Accepting Crypto

Not surprisingly, the number of charitable organizations that accept donations in cryptocurrency has also risen drastically — by up to 900%, according to The Giving Block’s report. Forty-two percent of crypto donations were made in Ethereum while 36% were made in Bitcoin.

The co-founder of The Giving Block suggests that a new class of donor has emerged: charitably inclined individuals who are able to make large cryptocurrency donations instantly with minimal paperwork.

“As an emerging source of fundraising, individuals from all corners of the crypto community — from anonymous donors to industry leaders to NFT artists — have shown an eagerness to embrace their capacity as supporters of important causes, from animal rights and disaster relief to mental health awareness and cancer research,” he stated.

“We are thrilled to have made increased access to capital available for hundreds of worthy causes and provided the opportunity for a growing number of crypto users to donate to the charities that interest them.”

How to Donate Cryptocurrency

While a growing number of charities now receive donations in cryptocurrency, many still cannot accept the donations directly. Instead, they usually accept crypto donations via a third-party processor or donor-advised fund (DAF).

Third-party processors like Crypto for Charity help facilitate crypto donations in exchange for a transaction fee, which is usually around 1% of the donation amount. The processor accepts the cryptocurrency on behalf of the charity and then converts it to cash for them. Similarly, DAFs also convert crypto to cash and then invest it for the charity.

To realize the greatest tax benefit when donating cryptocurrency, be sure to make the donation directly to the charity, instead of selling the crypto and donating the proceeds. This way, you won’t have to pay capital gains tax on the increase in value. Long-term capital gains on cryptocurrency held for one year or longer are currently taxed at up to 20%, while short-term gains on cryptocurrency held for less than one year are taxed at ordinary income tax rates.

Deducting Crypto Donations

Meanwhile, you can claim a charitable deduction for your cryptocurrency donations if you itemize deductions on your federal income tax return. The deduction amount is based on the fair market value of the cryptocurrency at the time of the donation. Keep in mind that deductions of cryptocurrency donations of at least $5,000 require a qualified appraisal of the asset.

Also, you might have to file IRS Form 8283, Noncash Charitable Contributions, when claiming a deduction for donations of cryptocurrency. Keep in mind that donating and deducting non-cash appreciated assets like cryptocurrency can involve complex tax analysis and planning. Therefore, you should consult with a tax expert and financial planner for specific guidance in your situation.

Please contact us if you have more questions about donating cryptocurrency to charity and whether this is a smart strategy for you.


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