Crypto Donations: How to Reduce Taxes! [US Guide for 2024]
31 Dec, 2023 · 12 min read
Crypto donations to qualified charitable organizations can reduce crypto taxes in the US. How?
Investors looking to donate cryptocurrencies need to follow certain criteria to be eligible to lower their crypto tax bill through donations. In this guide, we’ll cover how to reduce taxes with crypto donations, how to report them, and much more!
Can I donate cryptocurrencies to charity?
In the US, people and businesses can donate cryptocurrencies to charity. Please keep in mind that donating crypto is different from simply sending crypto to a wallet belonging to another person.
Several charities in the US and worldwide accept cryptocurrency. You can donate Bitcoin and any other cryptocurrency as long as the charity accepts it as payment.
Our partner, TheGivingBlock, makes it easy for taxpayers to donate Bitcoin while enabling charities and organizations to accept a crypto donation.
How do crypto tax deductions work?
In the US, you can donate cryptocurrencies to a charitable organization and claim an itemized deduction, enabling you to lower your crypto tax bill.
However, your cost basis and the current Fair Market Value (in USD) will influence the amount you will be able to deduct from your taxes.
Is donating Bitcoin taxable?
In short, no. Donating crypto is not a taxable event, nor is it subject to any taxes. On the contrary, you’ll probably be able to get a Bitcoin donation tax deduction from that contribution if you meet certain criteria.
You’ll only be able to claim a tax deduction if you meet criteria, such as donating the BTC to a qualified charitable organization. If you simply send crypto to another individual as a gift, the tax considerations are different. As a result, if you send your BTC to an individual, you won’t meet this requirement and won’t be able to take a tax deduction.
The tax implications for gifting crypto are different from those for donations. Please check our guide on crypto gift taxes to clarify any questions.
Should I donate cash or cryptocurrency?
Investors have more benefits when donating cryptocurrency than cash because donating assets like crypto can be used to overcome capital gains taxes and get a tax deduction while donating cash doesn’t offer those advantages. For example, if you sold your crypto holdings, you’d have to pay capital gain taxes (if you had a profit), and then you could donate the sales proceeds.
However, if you donated your crypto holdings, you’d be able to deduct the Fair Market Value (in USD) of your crypto, a much higher amount than your sales proceeds after taxes. Please remember that the FMV for your crypto has to be higher than your cost basis.
Is sending crypto to a wallet taxable?
No. Sending crypto from one wallet to another is not a taxable event in the US. You can transfer crypto from as many addresses and wallets that you wish and not pay taxes on it.
Sending crypto, gifting crypto to someone, and donating crypto to a charitable organization are different things and are treated differently for tax purposes.
Are crypto donations tax-deductible?
In the US, you can donate Bitcoin or any other crypto to a qualified charitable organization and receive a tax deduction. After you donate crypto to that organization, you can claim a charitable contribution tax deduction if you claim itemized deductions on your tax return. You’ll be able to reduce your crypto taxes in the value of your crypto donation.
How to calculate your Bitcoin donation tax deduction
When you donate crypto, if the current Fair Market Value (FMV) of your donation is higher than your cost basis, you can claim a tax deduction based on that FMV if you have held the crypto for more than 12 months. Otherwise, you can only deduct an amount up to your basis in the crypto.
Donate 0.1 Bitcoin: What is the tax deduction?
You bought 1 Bitcoin at $30K in December 2020. In January 2022, 1 Bitcoin is worth $60K. You plan to donate 0.1 BTC at that time, which is worth $6K. This $6K is your fair market value at the time of your Bitcoin donation.
What was your cost basis? When you bought Bitcoin, 0.1 BTC was worth $3K (0.1 BTC*$30K). That’s your cost basis.
As a result, you can claim a tax deduction of $6K since the FMV of 0.1 BTC in January 2022 is higher than your cost basis, and you’re donating Bitcoin after 12 months of holding. Long-term holding can get you can a tax-reduced rate across countries (CoinTracking shows which coins in your portfolio can give you a tax benefit).
Why donating crypto is better
If you donate an appreciated asset (like crypto), you won’t need to report any capital gain for the difference between the FMV and your cost basis.
As a result, it is better to donate your crypto directly to a qualified charitable organization than to sell it and donate the sales proceeds unless the FMV is lower than your cost basis.
So, yes, crypto donations can be tax-deductible through an itemized deduction on your tax return if you donate your crypto to a qualified charitable organization.
When should you donate crypto to get the best tax benefits?
You should donate cryptocurrency or other assets to get the highest tax benefit possible instead of donating, for example, cash.
If your current crypto holdings are worth more than what you paid to buy them, then you can take advantage of the tax benefits, donate those holdings to a qualified charitable organization, and claim an itemized tax deduction in that amount (the current Fair Market Value of your holdings in USD).
By donating assets like cryptocurrencies instead of cash, you bypass capital gains taxes and get a full deduction instead of only getting a tax benefit equivalent to the sales proceeds.
How to report a crypto donation?
Crypto donations have to be reported on your taxes, proving that the donation was made to a qualified charitable organization.
In order to generate reports, you have to track your crypto donations. You can import your crypto donations into CoinTracking manually or automatically from the exchange you used to make the transaction. Currently, you can import trades from 110+ exchanges and wallets, making it easy to report donations.
Trading crypto has several tax reporting requirements, including crypto donations. Please check this full guide on how to report crypto on taxes for more clarification.
How to Donate Crypto Through The Giving Block
Since launching in 2018, The Giving Block has helped crypto donors make secure charitable donations of their assets to thousands of organizations.
Many of these donors have reduced the capital gains taxes paid on their crypto, which can add up to as much as 30% when you factor in federal, state and net investment taxes.
Follow these steps to make the most impactful and tax-efficient charitable crypto donation in 2024:
1. Choose the right asset.
To avoid paying the long-term capital gains tax on your donated crypto, choose an asset that you have held for at least one year.
2. Donate before the deadline.
Each year, the deadline to make charitable contributions is December 31. Make a calendar reminder at least one week ahead of the deadline so you don’t forget.
3. Pick a registered 501(c)3 charity.
It’s essential that you give to a 501(c)3 organization if you want a tax deduction for your contributions. Except in specific circumstances, donations to 501(c)4 organizations are not tax-deductible.
4. Decide how much to give.
Charities that use The Giving Block’s crypto donation form allow their donors to see the fair market value of the crypto amounts they select in USD.
5. Give crypto and save your donation receipt.
Follow the prompts to complete your donation, and be sure to include a working email address in order to receive a donation acknowledgment letter.
Today, thousands of 501(c)3 charitable organizations accept cryptocurrency donations with The Giving Block.
To make a tax-efficient cryptocurrency donation, find a cause to support on The Giving Block’s donor marketplace.
Crypto donation taxes in other countries
Crypto donation taxes in Canada
In Canada, crypto investors can get a tax credit based on the amount they donate to cryptocurrencies.
If investors donate up to $200 in crypto, they can get a tax credit of 15%, while for any amount over that, the tax credit increases to 29%. Discover more about crypto taxes in Canada.
Crypto donation taxes in Australia
In Australia, investors can’t claim a tax deduction from their donation if the organization isn’t an eligible donating recipient. However, investors won’t pay capital gains over the amount donated since that’s not classified as a disposal (e.g., sale of cryptocurrency). Learn more about crypto donation and taxes from our Australia crypto tax guide.
Crypto donation taxes in the UK
In the UK, investors who donate cryptocurrencies can claim an income tax benefit based on the fair market value of their holdings, but there are certain requirements they have to follow to not benefit from this tax break and not pay capital gains taxes. Discover more about crypto donation taxes in our UK crypto taxes guide.
How can I avoid paying taxes on Bitcoin?
Donating Bitcoin or crypto is one of the best legal ways to avoid paying capital gains tax and get a tax deduction. Moreover, you can also employ crypto tax loss harvesting strategies, where you sell one of your portfolio positions at a loss to offset the gains you had in other positions.
Additionally, you can take crypto loans, hold crypto for more than 12 months to get a long-term capital gains tax rate, direct crypto to Roth IRAs or other retirement plans. Take a look at our guide on how to reduce your crypto taxes for more information.
CoinTracking FAQ about crypto donations and how to reduce taxes
Conclusion
Crypto donations can effectively reduce your crypto taxes if you donate digital assets to a charitable organization in the US.
You can deduct up to the Fair Market Value of the amount of crypto you’re donating if it’s higher than your cost basis, reducing more of your taxes than if you sold your holding and donated the proceeds.
Fortunately, crypto tax software like CoinTracking can help track your crypto donations automatically and generate the right tax reports to file your crypto taxes.
Share this
