The Bitcoin Rally Has Driven Up Crypto Donations—How To Use Them To Score a Tax Break | Global News Avenue

this is a season Charitable donation. Just like the value of cryptocurrencies Bitcoin Cryptocurrency donations are surging as many investors look to save taxes on their earnings.

According to Fidelity Charities, Donor Advised Fund (DAF)As of November 19, the organization has received $688 million in crypto donations. This is a 1,300% increase from $49 million in 2023.

Since the beginning of this year, the value of Bitcoin has increased by more than 133%, even exceeding $100,000. Experts say donating appreciated assets, e.g. cryptocurrency, stockand bonds – can give you some tax benefits.

How can donating cryptocurrency reduce your tax bill?

For those with a philanthropic bent, some experts recommend donating to a DAF, which is a charitable investment account sponsored by a nonprofit organization.

“You’ll receive a tax deduction in the year of contribution and potentially avoid paying future unrealized gains,” says Brett Koeppel, CFP and founder of Eudaimonia Wealth.

You can avoid paying when you donate appreciated assets (that you hold for more than a year) directly to charity or a DAF long term capital gains taxup to 20%.

Also, if you Itemize your deductionsyou can also deduct fair market value (or the value of the assets at the time of your contribution) up to 30% of adjusted gross income.

It is becoming a popular tax saving strategy. In 2023, more than half (63%) of Fidelity Charitable Fund’s donations were in non-cash assets such as stocks.

However, Koeppel said donations to DAFs are irrevocable, meaning you can’t get them back.

“So you need to make sure it fits within your overall financial plan,” he adds.

Donating cryptocurrency is now easier, but still tricky

Recently, some companies have also tried to make it easier for people to donate cryptocurrencies.

Daffy, a fintech provider of DAFs, recently announced a partnership with Robinhood to allow Robinhood users to donate their cryptocurrency holdings to Daffy accounts. Additionally, some nonprofits and charities accept cryptocurrency donations directly.

However, Kevin Brady, vice president of Wealthspire Advisors, noted that donors may still face obstacles when donating cryptocurrencies because not all charities accept them.

“Cryptocurrencies are more difficult to value and for larger donation amounts a qualified assessment is required,” Brady said.

According to the IRS, if you donate digital assets worth more than $5,000, you must obtain a qualified appraisal and fill out Form 8283. Additionally, cryptocurrencies are extremely volatile. The day after you donate, your gift may not be as valuable.