Crypto is Not Cryptic: A New Way to Give Better

Cryptocurrency(most notably the launch of Bitcoin) has been around for more than 15 years. It is estimated that all cryptocurrencies today may have an estimated market valuation of nearly $3 trillion in US dollars.

Look beyond the headlines of soaring valuations and momentous market collapses ( a downturn in 2022 wiped out nearly $2 trillion in value in a span of months), and another story exists. Cryptocurrency (aka “crypto”) has grown as a source of charitable giving, with nearly $2 billion donated to charitable causes globally over the last 5 years.

This article will look into the value of crypto as a great tool for donors and a new source of gain for nonprofits.

The Tax Advantages of Crypto as a Charitable Gift

From an IRS perspective, crypto is regarded as a financial instrument similar to stock. Donating crypto directly to a nonprofit provides a donor with two tax advantages:

• Capital Gains Tax Elimination: As with any sale, the seller would normally owe a tax on the gain (profit) of the item sold. If we were to use crypto as an example, a crypto donor who bought $10,000 of crypto, had the fair market value grow to $50,000, and then sold the crypto would owe a capital gains tax on the $40,000 growth. At the current federal capital gains tax rate of 23.8%, that would be a tax cost of $9520.

However, to incur no capital gains tax, the crypto donor must donate the $50,000 directly to the nonprofit. This benefit is contingent on the asset being held for at least one year to qualify as a long-term capital asset. This fundamental one-year rule is standard for all appreciated non-cash assets used for charitable giving, including stocks and mutual funds.

• Income Tax Deduction: The donor can deduct the full current value of their crypto donation from their income tax. If we utilize the prior example, the entire $50,000 gift of crypto can be deducted from their annual income tax liability.

As with other types of donations, there are several caveats that need to be recognized:

-Itemization: The donor would need to itemize their deductions instead of taking the standard deduction to be able to benefit.

-Adjusted Gross Income (AGI) Limits: The deduction is limited to 30% of AGI in one single tax year, although unused portions of the deduction can be carried forward for up to 5 years.

-Proper Documentation: Donations valued over $5000 should have  a qualified appraisal of its fair market value (FMV) as well as the filing of IRS Form 8283 Noncash Charitable Contributions to substantiate the FMV.

As with any tax matter, gaining guidance from a qualified tax professional to analyze your specific tax circumstances is highly recommended.

The Value of Crypto to Charities

Nonprofits that have been cautious about accepting crypto must now recognize its rapid climb as a significant source of charitable funding.

Crypto has become a source of larger gifts. An analysis by The Giving Block ( a crypto fundraising platform), determined that the average crypto donation was $10,978. This far surpasses online cash donations by nearly 80-100 times in size.

Thanks to crypto, new demographics have emerged as givers. Audiences of tech-savvy Gen Zs and Millennials predominate as crypto donors, with an average household income of over $110,000 and an average age of 38. The inherent nature of crypto can lead to instances of rapid increases of valuation. Add the ease of digital transfer and tax optimization strategies, and you have an audience for which crypto donation becomes a very easy math to calculate and act upon.

The Mechanics of Crypto Charity

For nonprofits, The Giving Block (TGB) and similar platforms act as an intermediary between charities and crypto donors, handling all the technical, financial and compliance concerns. They provide a QR code specific to a charity that donors can use to send their crypto gifts.

Due to the high volatility of cryptocurrency, TGB provides an "Auto-Conversion" feature that immediately takes a crypto gift and sells it for cash so that the nonprofit can access the donation value as useable funds. TGB also provides a “charity marketplace” where charities who accept crypto can make themselves known to crypto donors and promote their cause and organization.

Conclusion

The concept of digital assets such as cryptocurrency may have seemed farfetched at one time. Today, crypto must be recognized as a legitimate and growing  source of charitable gifting. For donors looking to see if crypto may be a smart source for their charitable giving, or charities trying to decide on how to better pursue crypto donors, Generosity Nexus can provide the guidance you need on charitable planning or crypto donor fundraising tactics.

Don’t hesitate to schedule an appointment to learn more about how we can help you.