If you’re looking to minimize your crypto taxes and help the community, consider gifting or donating cryptocurrency!
What if there was an easy way for crypto investors to both lower their taxes and give back to those in need?
When it comes to saving money on taxes, there’s a few strategies the savvy crypto trader can employ such as tax-loss harvesting and the capital loss deduction on crypto losses.
But what about the savvy and philanthropic crypto trader? If you’re looking to minimize your crypto taxes and help the community, consider gifting or donating cryptocurrency!
How can donating crypto lower taxes?
- Donating or gifting crypto is nontaxable
The IRS’s guidance indicates that donating or gifting cryptocurrency are not taxable events, so you will not recognize any gains when gifting or donating appreciated crypto assets.
Consider the alternative situation: You cashed in your appreciated crypto for USD and donated this fiat to your charity of choice. In this case, you would pay the capital gains tax on cryptocurrency gains, which can vary from 10% to 37% if you held the asset for under one year, and from 0 to 20% if you held the asset for over one year, depending on your income.
By donating your crypto directly to the charity, you won’t owe any taxes on these gains when you file!
- You can claim the itemized charitable deduction
Even more of a bonus is that donations to qualified charities are tax deductible. If you held the cryptocurrency for more than one year before donating, then you will be eligible for the itemized charitable deduction for the fair market value of the cryptocurrency at the time of contribution. Talk about a win-win situation.
If you donate after holding the cryptocurrency for less than one year, you are still eligible for the itemized charitable deduction! In these cases, though, it is likely that you won’t be able to deduct as much, since your deduction will be equal to the lesser of your cost-basis in the virtual currency or the virtual currency’s fair market value at the time of the contribution.
It’s important to note that the IRS distinguishes gifts vs. donations to qualified charities. To claim this deduction, be sure you’re donating to a qualified charitable organization. Other gifts, such as a graduation present or crypto crowd-funding, are not eligible for the deduction.
What assets should I donate for the most tax savings?
We’re glad you asked. Considering the factors above, it’s recommended that you donate your crypto assets in this order of preference:
- Long-term appreciated assets – avoid the capital gains tax and deduct the fair market value of the crypto at the time of the donation! Booyah!
- If you don’t have long-term appreciated assets then you should prioritize short-term appreciated assets – you still avoid the capital gains tax and will likely deduct your cost-basis. Not bad!
- If you don’t have any appreciated assets, then last in preference should be short-term assets that are in a loss position. However, it’d be more tax beneficial for you to harvest these losses in this case.
How can you donate crypto?
With all the above in mind, giving cryptocurrency is typically far more beneficial than making a cash donation due to the tax-advantaged savings. Organizations like The Giving Block make it easy to donate cryptocurrency and lower your crypto taxes. You can get even more crypto tax savings by making tax-optimized trades on assets in loss positions through Taxbit’s Tax Optimizer.
