As investment in cryptocurrency grows, so do donations in cryptocurrency.
Fidelity Charitable customers donated $ 331 million in cryptocurrency in 2021, compared to $ 28 million in 2020, according to an independent charity created by Fidelity Investments. The results of a separate study conducted by Fidelity Charitable also show that a third of cryptocurrency investors generally donated digital currency to charities.
“Investors are more aware that these are assets that can be donated,” said Tony Ommen, vice president of Fidelity Charitable, where as of June last year, $ 50 billion in assets were managed by donor-recommended funds.
The sharp drop in the value of cryptocurrencies in recent weeks could certainly reduce such donations in the short term. But philanthropists believe that in the long run more donors will use cryptocurrencies as donations.
“Cryptocurrency can expand the donor pool,” said Una Osili, deputy dean of the Lily Family School of Philanthropy at Indiana University-Purdue University in Indianapolis. “In particular, young donors – millennials and Generation Z – are more likely than others to own cryptocurrency, and many are starting to do charity work.”
Of course, many charities do not yet accept digital currencies. But ultimately, “charities that don’t accept cryptocurrencies will do so at their own peril,” Mr Ommen says.
Digital gifts can lead to lower transaction costs than traditional gifts – for example, avoiding credit card fees. Cryptocurrencies also facilitate donations abroad because there are no exchange rates or international financial rules, says Dr. Osili.
Ease of DAF
One of the most common ways to donate cryptocurrencies is donor-recommended funds, products managed by Fidelity Charitable, Schwab Charitable and others. Investors in these funds can claim a tax deduction for the year in which the deposit was made to the fund. But the money can be distributed in subsequent years, at the direction of the investor, to charities of their choice.
When cryptocurrencies are placed in the DAF, they are usually immediately converted into dollars to reduce the propensity for cryptocurrency volatility. Donor fees are not charged.
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Meanwhile, by donating cryptocurrency through the DAF or directly to a charity, gifts to officially recognized charities are covered by the IRS’s charitable tax deduction. You can deduct the full cost of the donation from your taxes if you have kept the cryptocurrency for more than a year and capital gains tax is not levied.
If the deduction is more than $ 5,000, the IRS requires that you receive an independent assessment of the value of the cryptocurrency when you donate it. It will usually cost “a few hundred dollars,” Mr. Ommen says.
Cryptocurrency donors can find such appraisers in consultation with a tax accountant or lawyer. Irene Sandler, vice president of marketing strategy for the global IT company, says she paid less than $ 200 for an appraiser when she donated four Ethereum coins – totaling $ 19,247 – to her fund, which advised the donor.
Ms. Sandler, who believes in tithing or regularly donates a portion of her profits to charity, says she donated Ethereum coins because she bought them for a lark and “did nothing to deserve” the profits. She says her donated etherium has become part of large contributions to charities including the Union of Interested Scholars.
“Crypto donation tax breaks are the main reason I do this,” says Penelope Linge, an investor from Park City, Utah. “Donations in bitcoins allow me to increase the size of my gifts.” Ms. Linge has donated part of her bitcoins to a donor-recommended fund designed for Edesia, a group that seeks to prevent and treat malnutrition worldwide.
Both Ms. Sandler and Ms. Linge say it was easy to transfer cryptocurrency to their donor-recommended funds. “I just needed to fill out a few forms, hand over my key from Coinbase,
and all, ”says Mrs. Sandler. The key is the password for digital currencies, and Coinbase is the cryptocurrency exchange.
While some nonprofits, including United Way and Unicef, accept cryptocurrency directly, others receive help from third-party services. One of the companies providing such services is Giving Block, which deals with the logistics of cryptocurrency transfers. As a rule, charities, not donors, pay a fee for services to these third parties.
Mr. Weil is a writer in West Palm Beach, Florida. He can be contacted at email@example.com.
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