Tax benefits of donating crypto
Donating crypto directly to charity can save you money on two types of taxes:
- Avoid paying any capital gains tax on your crypto gains.
- Receive a federal income tax deduction for the full value of your crypto if held for a year or more. If not held for a year or more, the deduction is limited to cost basis (or value, if lower). State and local income tax deductions may also be available.
An alternative is to sell your crypto and donate the cash proceeds, but you would first owe capital gains tax on the appreciation, resulting in higher taxes for you and less dollars going to furthering the mission of the charity.
Tax Deductions for Crypto Donations
Crypto donations are generally considered by the IRS to be gifts of property (similarly to publicly-traded stocks). The process for claiming a tax deduction for crypto donations depends on the value of the deduction.
If you have made a donation through Crypto for Charity and asked for a receipt, you should have gotten a donation receipt from FreeWill Impact Fund. Save this receipt in your records as support for the deduction you've claimed. If your gift was $250 or less, you don't necessarily need this to claim a deduction but it's recommended to always save it.
Amounts greater than $500
To claim a tax deduction for amounts greater than $500, you must file IRS Form 8283 along with your tax return for the year in which your gift was made. Form 8283 is where you will provide the IRS with certain details regarding your gift, which help establish your eligibility for the tax deduction.
You can access Form 8283 from the IRS with instructions at this link. If you need help completing the form, please speak with your tax professional.
Note that FreeWill Impact fund needs to complete Part V of the Form 8283 so please send a copy of your partially completed Form 8283 by simply replying to the donation receipt email. Then an updated copy of Form 8283 with the completed "Donee Acknowledgment" will be sent back to you.
Amounts greater than $5,000
If you are claiming a deduction for more than $5,000, you will also need to obtain a qualified appraisal of the donated assets, which establishes their value to the IRS. The appraiser will complete the "Declaration of Appraiser" contained in Part IV of your Form 8283.
There are a growing number of businesses that provide crypto appraisal services, such as Crypto Appraisers and Charitable Solutions.
Next, please send a copy of your partially completed Form 8283 by simply replying to the donation receipt email. Then an updated copy of Form 8283 with the completed "Donee Acknowledgment" will be sent back to you.
Amounts greater than $500,000
To claim a deduction for gifts valued above $500,000, the process requires that you file the appraisal report with your taxes (rather than simply keeping it for your records), so it could be more expensive to obtain.