How crypto donations help you bypass capital gain taxes

Donating cryptocurrency is a great way to reduce your tax bill while helping a good cause. Understanding how tax rules related to crypto donations work is essential for you to maximize your deduction and tax savings.

How much can you deduct on taxes?

The answer to this question depends on how long you held your cryptocurrency before donating. If you donate cryptocurrency which you held for a year or less,  your deduction is the lesser of market value at the time of the donation or the cost basis (how much you paid for it). If you donate cryptocurrency which you held for more than a year, your deduction is the market value of the coin at the time of the donation. Keep these rules in mind to maximize your annual tax deduction without randomly donating cryptocurrency in your portfolio.

How you donate matters

Donating crypto directly to a charity is more tax advantageous than donating cash proceeds after selling your coins. This is because when you donate cryptocurrency directly to a charity, the tax code allows you to bypass the underlying capital gains taxes.

Example

Sam purchased 1 bitcoin (BTC) in 2012 for $100. This BTC is worth $10,000 in 2020. He can directly send this BTC to the charity’s wallet or sell it on an exchange and contribute fiat to the charity. These two options result in two different tax outcomes.

As you can see, by directly donating the BTC to a charity, Sam can bypass $1,485 worth of capital gain taxes and get the full tax deduction of $10,000. The Giving Block platform facilitates this by connecting you with charities that directly accept cryptocurrencies. When you donate through The Giving Block’s widget, you will automatically be sent a tax receipt. So, would you rather donate to the IRS or to your favorite non-profit? You can choose from almost 100 crypto-friendly nonprofits.

If you have any questions or comments about this change, please let us know on Twitter @CoinTracker.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.