What is Cryptocurrency Donation?

Making a cryptocurrency donation is similar to donating cash. As cryptocurrencies become more and more popular, many charities have started accepting donations from alternative currencies like Bitcoin. But it’s not just because more people use these currencies — cryptocurrency donations come with a few enticing perks. ​

Why Cryptocurrencies?

Before we dive into the perks of cryptocurrency donations, let’s take a look at why they’re gaining popularity. The leader of the pack is undoubtedly Bitcoin, which first surfaced in 2008. This virtual currency has had its ups and downs, with its first peak in early 2018. In 2020, and now in 2021, Bitcoin’s value is surging. 

When these virtual currencies gain value and attention, they grow in popularity. In today's world, you can pay for goods and services with cryptocurrency and even donate them to charities.

Types of Cryptocurrencies

Bitcoin may be a household name, but it’s not the only virtual currency dominating the news. If you’re interested in other forms, here some of the most common:

• AltCoins (meaning an alternative to Bitcoins) include:
  • Peercoin, Litecoin, Dogecoin, Auroracoin, Namecoin
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• Others using their own systems are:
  • Ethereum, Ripple, Omni, Nxt, Waves, Counterparty

The 2014 IRS Decision & Donations

If you follow alternative currencies, you may know the significance of the 2014 IRS decision. Because of Bitcoin's increasing trend, charities are starting to show interest in accepting virtual cryptocurrency donations. But with this interest comes government scrutiny. For a while, there was a level of uncertainty surrounding the value of Bitcoin, Ripple, Litecoin, and other smaller currencies. But in 2014, the Internal Revenue Service (IRS) issued its long-awaited opinion on virtual currencies’ taxation. In the ruling, these currencies became known as "property."
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Aside from the resulting administrative and paperwork headache, this decision proved positive for individuals making cryptocurrency donations. It allows donors to receive a generous charitable income tax deduction for donating alternative currencies worth more than what they paid for it. This process is similar when giving appreciated stock to charity.

Benefits of Cryptocurrency Donations

The IRS ruling created some significant benefits when donating cryptocurrency like Bitcoin. These perks work for both the individual donating and the entity receiving the virtual currency. 

• Receive a Generous Tax Deduction — Because virtual currencies are property, donating them at an appreciated value means a more extensive tax break for you. After determining an appraisal, your tax deduction is equal to the fair market value of the cryptocurrency amount. Even if you only paid a fraction of the current market value, you still receive the tax break for today’s worth for your federal taxes, plus an additional amount for state taxes.
  • For example, let's say you transfer $100,000 of Litecoin to a local charity's Coinbase wallet. You'll save $15,000 in capital gains federal tax, plus $3,070 in Pennsylvania state tax (if you're a Pennsylvania resident (other state tax benefits may vary)). 
    
    
  • Also, you'll receive $33,000 in refunds for the federal charitable tax deduction. Your total tax savings is $51,070 or 51% of your contribution. That's a significant tax saving!
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• Enhance Transparency. Many people prefer cryptocurrency donations because of the boost in overall transparency. Because they work through a completely public blockchain ledger, these types of gifts are more transparent. They’re also faster and more cost-effective because they don’t require intervention and monitoring by third parties.
  
  
• Increase Your Gift — The benefits don’t stop with the donor. The charity that receives your cryptocurrency donation won't have to pay capital gains taxes because your gift is an appreciated asset. This alone increases the size of your contribution by up to 20% as your charity saves a significant portion of taxes.

What Charities Accept Cryptocurrency Donations?

Donating your virtual currency is the easy part. Believe it or not, finding nonprofits to accept Bitcoin donations is possibly the most challenging part of the entire process! There’s a reason for this complication. First of all, although virtual currencies have surged in the past two years, they are still relatively new. Not all charities know about them, trust them, or understand them. Secondly, there are still many uncertainties about alternative currency regulations. 

However, we know a few charities (some relatively well-known) accepting Bitcoin and other cryptocurrency donations. They are: 

• United Way Worldwide: This is the largest charity in the nation as measured by public donations. The fact that they accept Bitcoin contributions is promising for the future of all cryptocurrency donations.
  
  
• The Wikimedia Foundation: This organization runs Wikipedia and widely accepts donations of Bitcoin.
  
  
• The Water Project. As a huge organization providing clean and safe water for communities in Central Africa, The Water Project has jumped on the Bitcoin bandwagon and now accepts donations.
  
  
• BitGive Foundation: After receiving 501(c)(3) charitable tax-exempt status from the IRS, the BitGive Foundation hopes to revolutionize charity donations by establishing a Bitcoin-based investment fund for public health and environmental causes.

What if the Charity Doesn’t Accept Cryptocurrency Donations?

Just because your charity of choice doesn’t currently accept virtual currency donations doesn’t mean that they won’t. There are a few things you can do if you want to donate your cryptocurrency to a nonprofit. 

1. Research. Sometimes charities are receiving Bitcoin and other alternative currency donations, but they don’t necessarily advertise it. Or, perhaps they don’t accept it because they’ve never been asked. This doesn't mean they're necessarily opposed to it.
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2. Contact the Organization. Many charities don’t understand alternative currencies or know that they can accept them. In that case, you can simply contact the organization and ask if they’re interested in taking your Bitcoin. They may be willing to do so once they realize the ease of transfer and liquidation.
   
   

• Use a Third Party. If your charity still can’t or won’t accept cryptocurrency donations, you can always donate through a third-party national donor-advised fund, like the Fidelity Charitable Foundation. These types of organizations can process the gift and then grant the proceeds to the charity you recommend.

How to Make a Cryptocurrency Donation

As mentioned above, the process of donating your alternative currency is relatively straightforward. If you’re donating smaller amounts of money, it’s truly a breeze. But even for more considerable sums, the process isn’t complicated. 

You'll simply transfer your chosen amount from your "wallet" to the nonprofit, using its public wallet address. Today, you’ll even find apps on charity websites that walk you through the process. The charity will issue you a receipt, and that’s it — done!

Suppose the nonprofit hasn’t established a public wallet address to receive cryptocurrency donations. In that case, you may need to work with them to set up a virtual currency wallet or an account with a virtual currency payment processor. One such processor, BitPay, will process payments free of charge for registered 501(c)(3) organizations, liquidate the donated Bitcoins, and deposit the currency directly into the nonprofit’s bank account.

Don’t Forget an Appraisal for Tax Benefits

One of the perks for donors is that big tax break for an appreciated asset. Before you donate your cryptocurrency, you must receive an appraisal for the current market value. This step in the process is essential because you want to take full advantage of the federal charitable tax deduction. Remember, you don’t have to do this on your own. We’re here to answer any questions you have!

Cryptocurrency Donation is like a Cash Donation, Only Better

In theory, the process of donating cash to a charity is exceptionally similar to donating virtual currency. The idea is the same, but the process is slightly different (a bit easier), and the benefits are better (bigger tax breaks). 

It can be intimidating to think of an alternative currency for both you and the nonprofit, especially if you’re not used to it. But with Bitcoin and altcoins becoming more common around the world, it’s undoubtedly here to stay. By making a cryptocurrency donation, both you and your charity receive significant benefits.