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.
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:
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."
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.
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:
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.
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.
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Randy Tarpey CPA