The crypto community is incredibly financially literate and savvy. Despite everyone calling for crypto adoption and more merchants to accept crypto as payment, most people want to accumulate more crypto, not spend it. Holders think it will be worth more in the future, so why spend it now?
Spending Bitcoin (BTC) at Starbucks for a cup of coffee is a huge pain in the side. Although the transaction itself might be relatively painless with the help of a mobile app, the accounting and tax implications can be frightening if you’re transacting on a regular basis. This is because the United States Internal Revenue Service classifies cryptocurrency as property, meaning that if it appreciates, you owe capital gains on the appreciated amount at the time you spend it. No one wants to figure out their tax liability on a $2 cup of coffee.
So when does it actually make sense to use crypto? The one time it actually benefits you financially might surprise you: donations. Hear me out. Those same tax laws that make it a pain to use crypto to buy coffee also make it an incredibly tax-efficient way to donate to your favorite charity. Not only are you doing good, but you’re lowering your taxes and saving money in the process. Sure, sounds too good to be true.
How to donate with crypto
When you donate crypto, everybody wins — except the IRS. That’s because when you donate crypto directly to a nonprofit, it is not a taxable event, meaning you do not pay capital gains tax and can deduct it on your taxes to offset other gains or income. The nonprofit doesn’t pay tax on their end either, meaning you’re also able to donate 20%+ more than if you sold it first and then donated in fiat.
Below is an example of donating $250,000 in Bitcoin that was purchased for $10,000.
The best part yet? Not only can you lower your taxes, but you can make sure you keep the same amount of crypto in your portfolio. How? If you already donate using a credit card or other method, there is an opportunity for tax arbitrage. Replace the way you typically donate with crypto and you’ll actually be able to donate and deduct 20%+ more, then repurchase that same amount of crypto afterwards.
Boom. Donated more, saved more, and kept the same crypto balance.
Do many nonprofits accept crypto donations?
Yes, more and more are getting onboard. Another added benefit of donating crypto is that it encourages more nonprofits to accept crypto, boosting adoption in the process.
Go ahead and Google “donate Bitcoin” or “donate crypto” to find a crypto-friendly nonprofit. You might be surprised by how many you find and how easy it is. Here are a few examples of nonprofits accepting crypto that you probably recognize:
- Save the Children
- No Kid Hungry
- Rainforest Foundation
- Pencils of Promise
- The Water Project
- International Medical Corps
There are hundreds out there. The above ones even allow anonymous donations and can even automatically email you a tax receipt (you can use a private email like Protonmail).
So the next time your crypto moons, would you rather donate $57,120 to the IRS or to your favorite cause? The choice is yours.
The information provided here is for informational purposes only and should not be considered professional tax advice. If you have tax questions, contact a qualified tax professional.
The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article was co-authored by Alex Wilson and Pat Duffy.