The realm of cryptocurrencies is characterized by its rapid evolution and groundbreaking developments. If you invested in certain cryptocurrencies during their initial stages, it’s likely that you’ve enjoyed substantial profits, potentially accompanied by a hefty tax obligation. To mitigate the IRS’s share of your gains, consider an alternative approach this tax season: charitable donations. This strategy not only serves a good cause but could also be beneficial for your financial situation.
Why Donating Crypto Could Be a Wise Decision This Year
Adam Nash, the CEO and co-founder of Daffy—a contemporary platform for donor-advised funds—pointed out that charitable contributions are one of the most advantageous deductions permitted by tax regulations. Taxpayers can deduct donations of various assets, including cryptocurrency, up to 30% of their adjusted gross income annually. Fidelity reports that assets eligible for donation encompass stocks, bonds, mutual fund shares, and cryptocurrencies.
Capital Gains Tax Benefits for Long-Term Holders
If you hold cryptocurrency that has increased in value for over a year, donating it allows you to avoid capital gains taxes, according to Nash. He explained, “You’ll benefit from one of the most generous deductions available in the tax code. When you donate crypto held for more than a year to a qualified public charity, the IRS assesses the donation value based on the asset’s fair market value at the time, not the initial purchase price.”
Maximizing Savings Through Charitable Contributions
Ephraim Olson, co-founder of CPAI, an AI-driven platform for crypto tax management, emphasized that contributing appreciated crypto assets to charity can be a strategic way to enhance savings, provided all regulations are adhered to. “When all guidelines are observed, the donor can deduct the fair market value of the asset, even if their purchase cost was significantly lower,” Olson elaborated. This means taxpayers can enjoy the benefits of asset appreciation without first incurring taxes on those gains.
Itemizing Deductions for Financial Benefits
Ultimately, donating cryptocurrency and itemizing your deductions can lead to financial savings. Nash stated, “By itemizing, donating appreciated crypto can save the taxpayer money while increasing contributions to charitable organizations.” Olson added that the world of crypto has specific appraisal requirements and regulations to consider for tax implications. However, if these criteria are met, donors could take advantage of a market upswing without recognizing taxes on the gains. “While there may be limited growth in certain cryptocurrencies currently, a market shift later this year could present significant savings opportunities through crypto donations,” Olson noted. He also warned of the limitations on how much income can be reduced by these donations and the stringent regulations governing appraisals. “Many requirements cannot be rectified later, so missing them could render the donation non-deductible,” Olson cautioned. “It’s crucial to engage professionals to ensure compliance with all regulations.”
This article originally appeared on GOBankingRates.com: Why Donating Crypto Could Be the Smartest Tax Move You Make This Year
