Tax Implications of Accepting Cryptocurrency Donations
Since about 2006, cryptocurrency has been part of the financial market. With more and more people investing in cryptocurrencies like Bitcoin, it’s no surprise people are now also making donations in cryptocurrency. But what do cryptocurrency donations mean for your organization? Do you know what the implications of cryptocurrency donations mean for your congregation’s taxes? Read more to find out everything you need to know about accepting cryptocurrency donations and filing your taxes.
Cryptocurrency is Subject to Taxation
In 2014, the IRS was one of the first institutions to apply taxation to Bitcoin and other forms of virtual currency, known as cryptocurrency. But most of the taxation effects apply to the donor and not the organization or charity benefitting from the donation. Here are some of the tax implications of cryptocurrency donations to keep in mind:
- Cryptocurrency donations are property, not currency, so the IRS taxes them as such
- They are tax-deductible for the donor
- Cryptocurrency holders can avoid capital gains taxes through donations
Cryptocurrency is considered property. Holders can expect to pay short-term capital gains and losses if they have owned the currency for less than 365 days. If they have owned the currency for over one year, they will be subject to long-term capital gains and losses. As a tax shelter, owners of cryptocurrency do look for charitable organizations to give their money to in order to reduce their taxable income. This primarily affects the donor and does not have a direct impact on taxes for the organization itself.
The only tax implication to consider is declaring the donation when filing your own organization’s income taxes each year. You will need to declare the crypto value as well as the value in the currency you converted it to (USD, GBP, etc.). The donation does count as income but as property, not cash. This means you, as the organization receiving the donation, will not be taxed in the same way you would be taxed on a cash donation. A crypto donation is as beneficial to your donor as it is to you.
Should My Congregation Accept Cryptocurrency?
Accepting cryptocurrency is beneficial to your congregation for several reasons. It is a great way to widen your pool of donors. Crypto holders are looking for ways to minimize their capital gains tax payments and use tax deductions to maximize their wealth. Donating to your organization is beneficial for both you and the donor.
Crypto philanthropists are constantly looking for new ways to donate their virtual money and few charitable organizations have the means to accept it. By accepting cryptocurrency, you are opening your congregation up to a very wide pool of donors who would be happy to donate sizeable sums to your organization.
Cryptocurrency donations may also remain anonymous to the public. While you will need to provide a tax receipt, donors can keep anonymity with cryptocurrency donations if they wish. Another benefit to your organization is that no one can intervene to stop or seize cryptocurrency donations from your congregation.
How to Accept Crypto Donations
If you’re trying to learn more about how to accept cryptocurrency donations, you’re in the right place. Here are our best tips for accepting cryptocurrency on behalf of your congregation:
Invest in a Payment Processor Donations
A payment processor can instantly convert your cryptocurrency into the currency of your preference. This makes it easier for donors to give and much easier for your organization to accept and access funds your congregation can benefit from. Some platforms can process more than one type of cryptocurrency, which would help you cast an even wider net.
Open a Bitcoin Wallet
You can opt for a web-based wallet or a hardware wallet. You’ll need to invest in and download the software to accept the payments. Your IT department can ensure maximum security for you. A Bitcoin wallet will allow you to accept Bitcoin payments without verifying the Bitcoin owner’s wallet.
Offer a Crypto Donation Option
Make sure your donors know you can accept cryptocurrency donations to get their attention right away. You can add a function on your website that will allow making their donation easily. You should also publicize your cryptocurrency donation function so more people know about it.
How DonorWerx Accepting Can Help
DonorWerx is a platform that can help your organization increase and manage your donations. We offer our clients the opportunity to take advantage of live coaching and high-tech software to help you build your donation campaigns and encourage more donors to join the cause. DonorWerx also helps you to better understand your donors. What are they looking for? How do they want it to work? In understanding your donors and their needs, you can build a donation campaign that offers a smooth transaction for your donors, from start to finish.
For example, many donors have yet to convert their cryptocurrency to cash so there’s a good chance you won’t see a dime from them unless it’s accepted in crypto form. Because of the major tax advantages for the donor, they will love this opportunity. DonorWerx helps you identify these potential donors and show them how simple and easy it is for them to donate to your organization.
The easier you can make the donation process, the more donations you can earn for your congregation. DonorWerx can help you build campaigns and manage the donations you receive. Also, help you identify roadblocks that prevent donors from giving to your congregation so you can work towards building a simpler process. DonorWerx takes a very donor-centric approach to help your congregation grow.