Cryptocurrency has taken the world by storm, and now many people have turned to digital currency to both grow and manage their finances. Crypto is also being used as a way for people to donate to causes they deem worthy. The New York Times pointed out how anonymous donors are now using crypto channels to show their support, indicating that cryptocurrency is “now as acceptable for donations as stocks, bonds, real estate, and other investments.”
Q3 2021 hedge fund letters, conferences and moreCompanies such as Centric, Coinbase, and NYDIG have been using their crypto platforms to help tech-savvy donors make their charitable contributions.Why Use Cryptocurrency To Donate?Crypto Donations Provide Anonymity And Data ProtectionAccording to a survey conducted by Give.org, a substantial majority of Americans across all age groups are concerned about data privacy when it comes to philanthropy. Crypto donations mitigate this fear by allowing donors to give directly to an organization without sharing their personal information. Cryptocurrency also allows transfers to be anonymous and can be conducted from anywhere to anywhere around the globe.Crypto Donations Can Provide A Tax AdvantageFor example, let’s say you had purchased cryptocurrency, and it has since grown in value. You decide that you wish to donate the full amount to your preferred “IRS-recognized charitable organization,” which can be done in one of these two ways:
You could choose to sell the cryptocurrency and then donate the proceeds in dollars; however, this could result in a long-term capital gains tax, a Medicare surtax, and state and local taxes. This would result in a sizable amount of your donation going toward taxes.
However, should you go with the second option, which is to donate your cryptocurrency directly, then you may be able to see your tax-deductible contribution go further. With a direct donation, you could avoid having to pay a capital gains tax on your donation.
Processing Crypto Donations Can Prove Cheaper for the BeneficiaryThe 2020 Global Trends in Giving Report showed that about 63% of worldwide donors showed a preference for donating via online channels using either their debit or credit cards. However, due to transfer and other fees, card payments actually reduce the amount the organization will actually receive. With multiple donations coming in, these fees can quickly add up resulting in a significant loss.When donating via cryptocurrency, these fees are significantly reduced, which results in a larger overall contribution.Issues With Cryptocurrency DonationsCryptocurrency VolatilityThe New York Times referenced a specific donation that had been made in cryptocurrency. The donor required that the organization hold onto some of the cryptocurrency, “but the issue of what would happen if it plummeted in value had to be resolved.”Utilizing stablecoins, which are cryptocurrencies tied down to fiat currencies such as the U.S. dollar or a variety of precious metals such as platinum and gold, helps to control the volatility of cryptocurrencies. However, the issue here is that their value is now attached to the performance of regulated entities. Centric, on the other hand, is part of the Binance SmartChain and is the only self-regulating cryptocurrency of its kind.The currency keeps its token value steady by not undergoing “effective” price fluctuations. This is achieved through Centric Swap (CNS), which acts as a freely traded ecosystem within the world of cryptocurrency. CNS can be bought with the option of swapping to Centric Rise (CNR). CNR will then gain additional CNS every hour. Users will then have the option of swapping back to CNS. This can either be done in part or in full and completely depends on the preference of the trader.Not All Organizations Accept CryptocurrencyWhile not all organizations are able to receive cryptocurrency, many have made the option available to donors, and as demand increases, we expect to see more charities become open to receiving digital currency. Centric is currently in the process of finalizing its partnership with Crypto Donations to allow people to easily donate their crypto.Centric’s Tommy Butcher has said that “there will be no cost to charities with this. When they sign up, there will be no sign-up fee. This is going to be 100% transparent. And donations should be tax-deductible. We’ll be able to take donations from about 100+ cryptocurrencies.”All donations will be traded into CNS and thereafter converted to CNR. The charity will then be able to hold the donation in CNR and benefit from the continued growth it provides. Donors will also have the option of time-logging their donation so that they can determine when the charity is able to unlock the benefits.Apart from being cost-free to charities, the partnership means that they will not have to worry about managing hundreds of cryptocurrencies and wallets. It mitigates the nuances that traders might understand but that can be confusing for charities to manage. The confusion and fear around cryptocurrency are some of the reasons the adoption of crypto donations has been so slow. However, Centric has streamlined the process so that organizations do not have to be crypto experts to receive digital currency donations.How Does the IRS View Non-profits and Crypto Donations for Tax Purposes in the U.S.?The IRS has designated cryptocurrency as property instead of actual currency. For tax purposes, this means that cryptocurrency is subject to the same rules that apply to all other noncash charitable donations. As a result, donors are required to complete the appropriate filings for their digital currency donations.For instance, a donor could make a cryptocurrency contribution that is over $500, which would require them to fill out Form 8283 when completing their tax return. However, for gifts over $5,000, the donor would be required to obtain a qualified appraisal. The IRS has not yet mentioned if cryptocurrency would fit within the securities or the appraisal exception.The IRS advises, “For more information on the tax treatment of virtual currency, see Notice 2014-21. For more information on the tax treatment of property transactions, see Publication 544, Sales and Other Dispositions of Assets.”Final ThoughtsCryptocurrency has been projected to gain more traction as people become more acquainted with the sector. Crypto platforms allow for a global exchange of funds that can be transferred across borders without being dependent on any country’s exchange rate. However, due to the volatility of cryptocurrency, adoption of this digital form of payment has been slower than traders would like.Using cryptocurrency to donate to charities ensures safety and anonymity. Centric’s partnership with Crypto Donations is a revolutionary step forward as it removes the fear of volatility and the intimidation of having to work with the hundreds of digital currencies available and all the technical nuances that come along with crypto trading.