The Rise of Cryptocurrency Donations in Charitable Giving
Are you still skeptical about cryptocurrency and its potential impact on society? Think again. A charity recently received a crypto gift worth nearly $900 million, with more similar gifts in the pipeline. Charities are increasingly viewing crypto gifts as low-basis assets, treating them like long-term capital gain assets such as publicly traded stock.
Will Charities Accept Crypto Gifts?
Not all charities will accept crypto gifts. Similar to real estate, many charities may not have the capability to evaluate or manage complex assets like cryptocurrency. They may lack the necessary gift acceptance policies or checklists to handle such donations. However, the tide is changing, with many charities now equipped to accept cryptocurrencies. Even Fidelity’s donor-advised fund platform accepts crypto gifts, reflecting a growing trend.
According to Fidelity, 95% of crypto owners have made charitable investments, and the size of these investments is expected to increase significantly. Advisors need to be prepared for clients seeking guidance on crypto gifting, as it becomes more common among donors.
Why Crypto Gifting Matters
A study by Fidelity Charitable revealed that many crypto investors are unaware of the tax implications of selling digital assets or donating them to charity. Advisors play a crucial role in educating clients on the benefits of gifting appreciated cryptocurrency, especially in terms of tax planning and diversification.
Benefits of Crypto Gifting
- Clients can receive a tax deduction equal to the fair market value of the donated cryptocurrency.
- By donating cryptocurrency, donors avoid paying capital gains taxes on the appreciation, benefiting the charity entirely.
- Contributing to a donor-advised fund with crypto can simplify charitable giving and provide immediate tax benefits.
- Donors can support multiple charities with a single contribution, streamlining the process and maximizing tax deductions.
Structuring Crypto Gifts
The strategic structuring of crypto gifts is essential for maximizing benefits and simplifying the process. For example, donating cryptocurrency through a limited liability company (LLC) can help manage the sale of crypto and alleviate administrative burdens for charities. However, it’s crucial to seek professional guidance when structuring such gifts to ensure compliance and efficiency.
As the landscape of charitable giving evolves, advisors must stay informed about crypto gifting to meet the needs of their clients and embrace the opportunities it presents in tax planning and philanthropy.
Author: Randy A. Fox, CFP, AEP, founder of Two Hawks Consulting LLC, a recognized wealth strategist and philanthropic estate planner.