How to Reduce Taxes via Crypto Donations in(2024)

If you want to support a good cause while also looking to lower your tax bill in the process, cryptocurrency is the way to go. Aside from the low transaction costs and anonymity that cryptocurrency provides, it also allows you to avoid the heavy task burdens that are imposed on traditional donations. 

Currently, thousands of charities accept cryptocurrencies, giving you a diverse range of options for supporting any cause that piques your interest. In this article, we will look at how crypto donations reduce your tax bill and some best practices to follow when donating in cryptocurrency.

Are crypto donations a thing?

Yes, crypto donations are a thing, and they can significantly reduce the heavy task burdens associated with donating to a non-profit or charity organization. By donating in cryptocurrency, you avoid paying capital gains or capital loss tax on assets, as you would have if you have traded. This is because cryptocurrency donations are treated as tax deductions in the United States.

It is important to note that regulations on cryptocurrency taxation vary by country. Some countries do not tax cryptocurrency donations, while others do. As a result, you have to be aware of a country’s laws on donations in order to ensure compliance.

Can I Donate Cryptocurrency to Enjoy Tax Benefits?

You enjoy certain tax privileges when you donate cryptocurrency to organizations according to Section 501(c)(3) status. Section 501(c)(3) is a portion of the United States Internal Revenue Code that exempts federal taxes for registered nonprofit organizations that meet the code’s requirements. Usually, these nonprofit organizations are churches, charitable organizations, or even private operating foundations. Cryptocurrency donations to 501(c)3 nonprofit organizations are considered tax-deductible as they are not viable for Capital Gains Tax and cannot be taxed. 

How do crypto tax deductions work?

When it comes to donating cryptocurrency, the tax rules can be a bit sophisticated. Essentially, if you’ve held onto your digital assets for more than a year before donating them, you’re entitled to deduct the fair market value of the cryptocurrency at the time of the donation from your taxes.

However, if you decide to donate cryptocurrency that you’ve owned for a year or less, you’ll only be able to deduct the original cost basis – what you initially paid for it.

For example, if you paid $10,000 for Bitcoin a year ago and it is now worth $40,000, you can deduct that amount from your taxes when donating. But if you have owned it for a year or less, you can only deduct $10,000 from your taxes.

In addition, you earn another itemized deduction if you are donating a cryptocurrency that is currently at a loss in the market. If you donated over $250 to a nonprofit organization on any occasion, the IRS demands a written letter from the charity organization’s director. The letter must contain the organization’s name and highlight the amount donated at a certain period. It should also state whether you received gifts in exchange for your donations before you can enjoy any tax benefits. 

While filing your taxes, include tax receipts and other deductions showing donations on Form 1040 Schedule A, the IRS forms for itemized deductibles. For donations above $500 in one tax year, you will be required to fill out Form 8283.

Can the IRS track my crypto wallet?

The United States Internal Revenue Service has employed over 80,000 skilled agents to focus on crypto tax enforcement. These agents are being trained in anonymity, blockchain transactions, and customer data management. Since the blockchain has access to the public ledger, all that is required is to match your public wallet address to reveal all your transactions. 

In addition, the IRS employs other avenues to track your crypto investment and a common way is via KYC. After winning a John Doe lawsuit against popular crypto exchanges, many popular crypto exchanges are required by law to share their KYC data (including yours) with the government. 

Can I Donate Anonymously Cryptocurrency and Still Enjoy Tax Benefits?

Even if you decide to donate anonymously, we recommend you take advantage of your anonymity and report every donation to the IRS to ensure compliance. You can use a pseudo email address or name to donate anonymously, but endeavor to report your anonymous donations to the tax officials.

How Can I Donate Cryptocurrency to Enjoy These Benefits in PTPShopy?

PTPShopy offers crypto donation solutions for nonprofit organizations, allowing them to attract different donors across the border, and also expand their earnings. Nonprofit organizations can receive donations anywhere in the world by inputting PTPShopy’s API key into the code snippet of their website. 

With a customizable DONATE button that can be added to their website, visitors can donate any cryptocurrency instantly. The following are ways to donate cryptocurrency to nonprofit organizations:

Look for nonprofit organizations accepting crypto payments: Since Nonprofit organizations make up 5.7% of the U.S. economy, search for any of these approved organizations looking for donations to one cause or another. PTPShopy offers Bitcoin and cryptocurrency donation solutions to hundreds of nonprofit groups in the United States. Many have utilized the crypto donation form and fundraising platform to generate millions to create an impact in the community. 

Once you’ve found a nonprofit organization, donate: If you’ve found an approved nonprofit organization, click the large “DONATE” button. You’ll be redirected to another page with a form that will require you to select the cryptocurrency you would like to donate to the charitable organization. 

Scan the QR Code: After choosing your desired cryptocurrency, scan the QR Code and the cryptocurrency address of the nonprofit organization using your wallet application. You can also donate by copying the organization’s address and making a donation. Once successful, your donations go directly to the organization’s wallet immediately. PTPshopy only acts as a solution and not a participant in the donation. It is then left to the nonprofit organization to use the cryptocurrency or convert it to any currency of their choice. 

Print your official donation receipt to claim your tax benefits: After every successful, PTPShopy provides donors receipts that can be used to redeem tax benefits. These receipts show all the successful donations you’ve made to certain organizations over a period. The tax receipts are mailed to the email address after every cryptocurrency payment to help them during tax reporting or filing.