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.
Remember that when transferring crypto between wallets, you incur fees, which will probably not be tax-deductible. Learn more about the tax implications of transferring crypto between wallets in our guide.
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.