Perhaps the belief that you will feel a warm feeling of helping those in need is not so motivating for you, but what if you can also significantly reduce your tax bills by donating cryptocurrency? There’s never been a better reason to become a crypto philanthropist. In this article, we will analyze how you can lower your tax bills by donating cryptocurrency for reasons you value, as well as how you can start accepting crypto donations with NOWPayments.
- You can help those in need and reduce your tax bill simultaneously by donating crypto.
- There are several ways to lower your tax bills and even grow tax-free.
- NOWPayments allows you to accept fast and cost-effective crypto donations.
Are crypto donations tax deductible?
Yes, crypto donations are free and tax-deductible, according to IRS guidance. Since cryptocurrency is regarded as property (for US citizens), donations with it are non-cash donations and allow you to deduct from 20% to 50% of your adjusted gross income.
In some countries, cryptocurrency is not taxed at all, for example, Germany, Hong Kong, Malaysia, Portugal, and others.
It is worth noting that if you have owned a digital currency for more than a year at the time of donation, then your tax deduction will be equal to the fair market value of the asset, and if you have owned a cryptocurrency for a year or less at the time of donation, then your deduction will be less than the fair market value of the asset. It is also important that you can request an itemized charitable deduction in the event that you donate cryptocurrency to a qualified charity. There are also several rules following which you can claim a tax deduction:
- You must donate cryptocurrency to qualified charities, which means that a donation to a blogger, friend, and others like them is not subject to a tax deduction. Also, political organizations and candidates do not fall into this category.
- Your donation must be on a pro bono basis. That is, you cannot receive any financial or other benefits from your contribution.
- You are required to provide an extract with a crypto transaction that was carried out as a donation or a written acknowledgment of the donation from the organization.
Ways crypto donations lower your tax bills
Donate the cryptocurrency you’ve been holding for over a year
If you want to get the most benefit from the tax deduction, then it is best to donate the cryptocurrency that you have held for more than a year. This way, you will be able to deduct the fair market value of your cryptocurrency at the time of donation. Since over a longer period, a crypto asset usually increases in value, when you donate it, you can avoid a large capital gains tax bill.
Donate on a regular basis
It’s always nice to do good things, and when thanks to this, you can still reduce your tax bills, it’s doubly nice to contribute. By regularly donating a certain amount to a registered charity, you can really help in solving a cause that is close to you, but you also become an avid donor, in consequence, can not only reduce your tax bills but also grow tax-free.
Donate the cryptocurrency that is appreciated in value
The crypto market is characterized by extreme volatility, which means that digital assets can both significantly increase in price during the holding period and depreciate. If you want to get the maximum benefit from the tax deduction, then it is best to donate exactly the cryptocurrency that has increased in price during the holding period. This way, you avoid capital gains tax.
If you want to donate a cryptocurrency that has depreciated during the holding period, then this is not the best option. You can always use a depreciated cryptocurrency to harvest tax losses, which will bring you more benefits.
Study the taxation of crypto donations in your jurisdiction
Fortunately, in some countries, cryptocurrency is not taxed at all. In most cases, a donation to a qualified charity is tax-free and tax-deductible. For example, in Germany, if you hold a cryptocurrency for more than a year, you do not pay any capital gains tax. In addition, residents of Germany do not pay income tax if they receive cryptocurrency, not in exchange for some service or action. In the UK, a donor who has made a donation to a registered charity has the right to claim income tax relief from the donated amount.
How to accept crypto donations?
NOWPayments is the best crypto payment gateway that provides an extensive list of integration tools. Our service allows you to accept crypto donations on any platform, website, or directly from donors. NOWPayments provides instant payouts directly to your crypto wallet. However, we also provide a custodian solution that allows you to save significantly on transaction fees. We provide the following donation tools:
- Donation link is the easiest-to-use tool. The link is ideal for accepting donations on social media or directly from contributors. Simply generate a custom link and share it with your audience.
- Donation widget is a tool with which you can accept more than 100 cryptocurrencies as a donation on any platform, application, or website.
- Donation button is the perfect tool that will fit well into the design of your website, forum signature, or blog. The button allows you to accept Bitcoin, Ethereum, and other supported cryptocurrencies quickly and seamlessly. To add a donation button to your website, follow the steps below:
- Create your NOWPayments account.
- Go to the “Settings” section >> “Payment settings”.
- Add your page address.
- Generate an API key.
- Go to the “Payment Tools” section >> “Donations”.
- Select the donation style button.
- Paste the code into the platform of your choice, but make sure to replace the placeholder with your API key.
- Accept crypto donations!
Accepting crypto donations with NOWPayments is very simple. Just select the suitable donation tool and accept 100+ cryptocurrencies. Crypto donation is a fantastic way to change people’s lives for the better and also significantly reduce your tax bills.