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What you need to know
- Fidelity Charitable (a provider of DAFs) received crypto donations worth $688,000,000 as of November 19.
- That's a whopping 1,300% increase from the $49 million in total crypto donations made to Fidelity in 2023.
- Donors don't have to pay capital gains tax when donating an appreciated asset, like crypto or stocks, which can reduce their tax bill.
It’s the time of year for giving. As the value of cryptocurrencies like bitcoin has surged, so have crypto donations, as many investors look to save on the taxes from their gains.
Fidelity Charitable (a provider of donor advised funds, or DAFs) reports that the organization received 688 million dollars in crypto contributions by November 19, 2018. It’s an incredible 1,300% rise from just $49 in 2023.
The value of Bitcoin has grown by over 133% in the first six months of 2018. It is now worth more than $100,000. Experts say that donating appreciated assets—like crypto, stocks, and bonds—can give you some tax benefits.
Why Can Donating Cryptocurrency Reduce your Tax Bill?
Experts recommend that people who have a sense of charity contribute to DAFs. DAFs are accounts for charitable investments sponsored by non-profit organizations.
"You'll receive a tax deduction in the year you contribute and potentially avoid paying future unrealized gains," said Brett Koeppel, CFP and founder of Eudaimonia Wealth.
Donating appreciated assets (that you’ve owned for at least a year), directly to charities or DAFs, can help you avoid long-term gains tax of up to 20%.
You can deduct your fair market value, or the amount of the asset you contributed, up to 30% if your itemize deductions.
It's becoming a popular tax-saving strategy. More than half of the contributions made to Fidelity Charitable in 2023 (63%) will be non-cash items like stocks.
Koeppel explained that donations made to a DAF were irrevocable. This means they could not be accessed again.
"So, you'll want to ensure that doing so aligns with your overall financial plan," he added.
Crypto donation is easier now, but it can still be tricky
Some companies are also trying to simplify the process of donating crypto.
Daffy is a fintech company that provides DAFs. Recently, Daffy announced a partnership between Robinhood and Daffy. Robinhood users can donate any crypto to Daffy. Some charities and nonprofits also accept direct crypto donations.
Kevin Brady is a vice-president at Wealthspire Advisors. He notes that there are still obstacles for donors when it comes to donating cryptocurrency, since not all charities will accept the digital currency.
"Crypto is harder to value and for larger donation amounts will require a qualified appraisal," Brady said.
If the digital asset donated is valued at more than $5,000 you will need to get an appraisal from a certified appraiser and fill out form 8283. Cryptocurrencies are also extremely volatile. You may find that your donation is not worth the same amount the next day.
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