A whole new generation of donors is out there—donors who own cryptocurrency and want to use it to meet their charitable goals. But while many donors are trending toward crypto donations, quite a few charities still don’t accept direct donations of cryptocurrency. Although it’s understandable (it’s still a relatively new asset, after all), working with crypto donors to achieve a mutually beneficial gift may be easier than you imagined.
Why do donors want to give cryptocurrency?
Major cryptocurrencies like Bitcoin and Ethereum are, for charitable purposes, functionally identical to a publicly traded stock. As of August 2024, Bitcoin’s market cap is over $1 trillion, and its daily traded volume measures in the tens of billions of dollars. Crypto owners may be holding highly appreciated assets that, if sold, will generate a hefty capital gains tax. As with appreciated stock, donating appreciated cryptocurrency offers compelling tax advantages—the gift qualifies for a charitable deduction for the full fair market value and bypasses the capital gains tax that would have been due on a sale.
What is involved in accepting a direct gift of cryptocurrency?
1. Use a wallet. Your organization must have a cryptocurrency wallet. You can create an account with one of the major cryptocurrency exchanges (such as Gemini) to hold your wallet. However, wallets are not usually set up to be held by organizations and can require personal information, such as a social security number from a not-for-profit employee. Though rare, they also carry the inherent risks of digital currency, such as unauthorized access and being hacked. But if your organization chooses this route, the donation process is fast and cheap—you simply direct donors to make gifts to this account.
2. Sell crypto for cash. Crypto is volatile. Immediately selling the crypto ensures, for tax and accounting purposes, that the amount your organization receives is the same as the amount donated.
3. Establish and share policies and procedures. However your organization chooses to accept and liquidate cryptocurrency donations, you mitigate risk by having an acceptance policy and formal procedures in place. Clearly state these on your website and in your marketing materials.
4. Meet IRS reporting requirements. While a crypto donation is similar to a gift of appreciated stock, it requires different tax reporting. Your organization must file Form 8282 if you sell donated crypto within three years of the donation. If a donor claims a charitable income tax deduction of more than $5,000, the donor should obtain a qualified appraisal under the Tax Code and file Form 8283.
Is there an easier way to handle direct donations of cryptocurrency?
Some charities find it simpler to use a platform designed to facilitate cryptocurrency donations. These platforms can typically accept, process, and sell crypto donations and handle all reporting requirements, greatly minimizing the administrative burdens on your organization.
If we receive a crypto gift in our wallet, will we know who donated?
Many people who hold cryptocurrency value the anonymity it offers. However, you can encourage donors to supply their information before they access the wallet. Assure them that you want the opportunity to thank them for their gift.
Are there alternatives to direct donations of cryptocurrency?
Despite the growing ease of directly accepting cryptocurrency donations, many charities remain reluctant. Fortunately, other options can work for both the donor and the charity.
• A donor-advised fund (DAF). Most of the largest DAFs (such as those run by Schwab, Vanguard, and Fidelity) already offer a fairly streamlined process for donors to contribute cryptocurrency. Some even have no minimum contribution requirements, making it an easy option for smaller donors. When the donor recommends a grant to your organization, you receive cash—the contribution’s origin as cryptocurrency does not affect the gift.
• A charitable remainder trust (CRT). A donor interested in securing an income stream for themselves or others can use cryptocurrency to fund a CRT. The trustee sells the crypto to a third party tax free. All sale proceeds go into the trust, which makes regular payments to the income beneficiaries according to the terms of the trust. At the end of the trust term, your organization receives the remainder.
• A charitable lead trust (CLT). If a donor funds a CLT with crypto, the trustee liquidates part of it to make cash income payments to the charity. At the end of the trust term, the trustee distributes the remainder to heirs or other named beneficiaries.
• A gift of an LLC. A donor who wants to make a significant gift to a smaller charity might find it helpful to transfer the cryptocurrency into an LLC, then donate the entire LLC to charity. The donor can remain a managing partner or hire a third-party manager to oversee the donation. This scenario allows the charity to accept cryptocurrency without a crypto wallet.
How should charities move forward?
Consider the following steps:
• Acknowledge that cryptocurrency is likely here to stay, and a certain percentage of your donors (or potential donors) already hold this often highly appreciated asset.
• If you don’t already accept cryptocurrency donations, either directly in a wallet or through a cryptocurrency donation platform, consider whether it makes sense to do so now or in the near future.
• Inform supporters (on your website and in marketing pieces) of their options for making a charitable impact using cryptocurrency, whether directly or through other giving tools.
• Educate supporters about the tax advantages of giving cryptocurrency. According to a Fidelity Charitable study, over one-third of cryptocurrency owners did not realize that selling crypto generates taxable capital gains.
• Educate your team so they can comfortably talk to donors about the asset, your organization’s policies, and the process.
Crypto is the fastest-growing donation method for young donors. From 2018 through the beginning of 2024, crypto donations have exceeded $2 billion. Growth in the crypto sector is a significant funding source fueling modern philanthropy. If you haven’t already done so, now is the time for your organization to evaluate whether to start accepting crypto or explore ways to make this kind of donation easier for donors.
