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Donating Cryptocurrency Directly to Charities

I bomb atomically, Socrates’ philosophies and hypotheses

Can’t define how I be dropping these mockeries

Lyrically perform armed robbery

Flee with the lottery, possibly they spotted me

Battle-scarred Shogun, explosion when my pen hits tremendous

Ultraviolet shine blind forensics

-Inspectah Deck, Triumph

If you read most of my articles, it is easy to see that I’m influenced by hip hop. No matter the subject, I can’t write without listening to several hip hop songs. It doesn’t matter what the topic is, it can be as boring and complex as cryptocurrency taxes. The verse above is one of the best hip hop verses ever. It is so beautiful and complex. The verse reminds me so much of cryptocurrency tax rules. In this article, I will discuss the tax implications of donating cryptocurrencies. Before, we even get to the tax implications, make sure that the nonprofit organization that receives your cryptocurrency donation has basic knowledge of cryptocurrency. Just don’t give crypto assets to an organization that may lose it due to a lack of knowledge.

Ok, let's talk about taxes……

There are some people with a heart of gold. Let's say someone invested in bitcoin when it was like a dollar to purchase one bitcoin. This person may now say that he has more “money” than Scrooge McDuck. Instead of selling the cryptocurrency and donating the after-tax proceeds, this person can donate it directly to a charity. By the way, this person sounds like he/she had a great conversation with his/her tax accountant! Don’t ever feel guilty about donating to a worthy organization and receiving a nice tax deduction. It is okay to be smart about how you donate your assets.

Donating cryptocurrency assets directly to a charity provides significant benefits such as the tax deduction will be equal to the fair market value of the donated coins (as determined by a qualified appraisal), and the donor will not pay tax on the gain. For example, if the fair market value of the donated cryptocurrency was $10,000 on the date of the donation then that is your deduction. It doesn’t matter if the next day it did a nosedive to $2 or skyrocketed to $25,000. Don’t think you are smarter than the IRS by trying to take a $25,000 deduction in this example. The IRS is preparing for the cryptocurrency tax war, you don’t want to get caught out in a tax audit. The interest and penalties are not worth the silly risk.

Everyone wins in this situation. This situation results in a larger donation because, instead of paying capital gains taxes, the charity will receive the full value of the donation. For example, let's say you didn’t listen to your tax accountant and sold the cryptocurrency first then donated. In this case, you will be taxed on the capital gain. For this ill-advised strategy to work, the coins must have been holding onto for longer than one year. Just for example purposes only, let's say that you sold $100,000 worth of bitcoins and your capital gain was $75,000. You must pay taxes on the $75,000 capital gain then the remainder goes to the charity. Now, by donating directly to the charity, the charity gets the full $100,000! Depending on several tax situations, that $100,000 charitable deduction may be limited on your tax return. However, that is a conversation for another day.

Before you donate to a nonprofit organization, check to see if the organization actually qualifies as a tax-exempt organization. You can go to https://www.irs.gov/charities-and-nonprofits to check.

Need help with your crypto taxes? Well, contact Jamaal "Crypto J" at jamaal@jstaxcorp.com!

Podcast: https://anchor.fm/36chamberscryptotaxes

Website: www.36chambersofcryptotaxes.com

YouTube: https://www.youtube.com/channel/UCNoiZj7UxmuMrPtyIaSX41Q

IG: @36chamberscryptotaxes

Twitter: 36cryptotaxes

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