This year is well on the way to becoming a record year for Bitcoin donations as more and more donors learn of the tax benefits of a Bitcoin rather than a fiat donation. Why are so many high net worth individuals giving great gifts in stocks or bitcoin instead of donating in fiat? Usually it’s all about taxes. If you’re donating bitcoin, which is considered owned by the IRS for tax reasons, donating valued bitcoin is probably one of the most tax efficient ways to support your favorite bitcoin-friendly charity. Why? Think about it as if you were donating dollars before taxes. When you donate Bitcoin directly to a 501c3 nonprofit, you (the donor) owe no capital gains taxes and can write off the donation’s fair market value. When you sell your bitcoins and then donate, you pay 30% or more tax first and then donate less. Plus, your depreciation would also be less as the donation is less. Since the nonprofits are a 501c3, they are also not taxable on the gifts and are better off, too.
For those of you who want to go a step further, there is also a tax arbitrage option as there is no laundering rule for crypto donations. This will only help you if you are already donating Fiat but appreciate Bitcoin that you are HODLing. You may need to read this next paragraph more than once as it is a little more complex.
For example, let’s say you already donate $ 10,000 per year to your favorite charity using your credit card. If you replace that $ 10,000 donation with an equivalent Bitcoin donation and use the fiat to buy back your Bitcoin position, you will now have cleared your capital gains on the previous positions and increased your cost base. So if you give the same gift in bitcoin every year and then buy back the same amount with the fiat you would have donated, you are much better off.
Unfortunately, most bitcoiners don’t know about the tax benefits of donating treasured bitcoins, but if you ask your financial advisor or accountant they will likely tell you to donate your most precious assets (like bitcoin) first. Until recently, stock donations weren’t easy, so this was usually a strategy reserved for the mega-rich. As Bitcoin is easier to transfer and hundreds of nonprofits accept Bitcoin donations directly, it is becoming more and more common for the average citizen to be more tax efficient in helping their cause by donating Bitcoin.
To raise awareness and encourage Bitcoin donations, The Giving Block has launched a Tax Season campaign aimed at educating users about the tax benefits of donating valued Bitcoins. Although I’m making a donation, there are a handful of ways you can lower your Bitcoin taxes beyond a donation. Other methods include
- Use tax software to automatically track your transactions
- Working with tax professionals to do the heavy lifting for you
- Moving to a city like Miami, which is in a state that doesn’t levy income taxes (and has a bitcoin-friendly mayor!)
Whether you’re moving to Miami to get a tan and save on taxes, or donating bitcoin to a charity, we hope you will take the time to plan ahead or consult a tax professional to help you plan your HODL tweak it so you can stack as many sats as possible.
This article is not intended to be a tax or financial advice – all parties should do their own research when making financial decisions.
This is a guest post by Alex Wilson. The opinions expressed are solely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.