The price of Bitcoin has dwindled for the most part of 2018. The plunges have prompted several investors to cash in on their assets to avoid further losses. Nonetheless, the tax consequences of an entire sale have proven to put a major dent on investors’ after-tax gains.
However, the bitcoin and crypto owners who decide to engage in various charitable endeavors have a chance to make donations while simultaneously enjoying a valuable tax break. Donating cryptos to charity can save you considerable potential tax liability subject to the way the IRS treats bitcoin for tax purposes. The donations can also offer an equally valuable tax deduction to minimize your entire tax liability.
Why Donating Bitcoin is a Smart Idea
According to the IRS, bitcoin is considered as an investment asset. Thus, selling the crypto leaves investors subject to all the rules that govern capital gains. Selling bitcoin and other cryptos attract capital gains tax on any value increment since you acquired the crypto.
You are required to pay short-term capital gains taxes charged at your normal income rate if you have held the crypto for less than a year. If you have owned the crypto for more than a year, it attracts 0% to 20% long-term capital gains taxes subject to your ordinary income bracket.
If you sell bitcoin and give away the proceeds you will be required to pay income tax on the profits. On the other hand, donating bitcoin offers you more tax breaks equivalent to the current value of the crypto in the market.
The recipient organizations get more funds since they do not owe any tax as they are recognized tax-exempt institutions. The net tax savings is almost four times as big as selling the crypto and then giving the money to charity.
Connie Gallippi of BitGive and Joe Waltman of GiveCrypto.org believe that charitable giving in crypto solve transparency challenges. It also determines the level of impact the donation has on the targeted community. BitGive works with existing non-profits while GiveCrypto works on individual initiatives.
According to Waltman, crypto is helpful in areas that have broken governments and broken money. By donating your oldest coins before the end of a calendar year, you can offset considerable taxes on your annual gains. Cryptos enable charities to avoid cross-border fees that may rise up to 30% and money transmitter regulations.
The transparency involved also ensures that no money goes to money launderers of any entities under economic sanctions. Donating crypto, therefore, will save you sizeable taxes while you empower people directly by reaching them on a peer-to-peer basis. The financial power is also transmitted almost instantaneously guaranteeing the needy get the help they need quickly.
For the record, the IRS estimated that American crypto investors had owed capital gains tax on $92 billion last year.