Crypto donation continue to boost humanitarian relief efforts in disaster and war zones. When Russia invaded Ukraine in February 2022, the community of Crypto Charity enthusiasts mobilized to donate funds to the Ukrainian government and NGOs operating in the region. With millions of dollars’ worth of cryptocurrency coming from around the world, the unobjectionable nature of Bitcoin, Ethereum, and others proved instrumental in providing help where needed.
But while the mainstream media continues to focus on Ukraine, several Crypto charity projects and DAOs have turned their attention to making crypto donation to help Turkey and Syria, devastated by earthquakes.
Crypto Donation is a community focused on rights and sovereignty, so it was effortless for them to grasp and feel empowered. Like the Ukraine DAO, the DAO Turkey Relief was launched after the earthquake in Turkey to raise funds to send to government agencies and NGOs operating in the disaster area. Turkey Relief DAO aims to publicize organizations working to help those affected by earthquakes.
Factors to Consider In Crypto Charity
Here are some essential factors to know before seeking Crypto Donation.
Once you decide on a Crypto charity or cause to donate to, your focus should shift to your tax position. There are certain things to remember when donating crypto assets, particularly considering how their volatility can affect your taxes and decision-making.
What crypto asset should I donate?
Giving a crypto donation does not trigger a taxable event for the donor or the recipient. So after donors decide how much they want to donate, they must also determine which assets to donate. Donating assets with a low tax base can reduce or minimize future taxable income, while the donor retains assets with a higher tax base. Entities exempt from tax in the United States because of their educational, charitable, or other activities ("charities") are generally indifferent to the tax base of the assets they receive. This is because they are usually exempt from tax on the proceeds of assets sold to finance their charitable activities.
If the recipient is not tax-exempt in the United States—that is, it is a "non-charity"—they will probably be concerned about the tax base of the asset given to them. This is because the donor's tax base on donated assets is often—but not always—passed on to the non-charitable entity. So, if the donor wants to prioritize their tax position over the non-charity, they will donate the crypto with the lowest tax base. Conversely, if the donor wishes to prioritize the benefits of the donation to the non-charitable organization, they will give the cryptos with the highest tax base.
Does my crypto donation have a built-in loss?
Crypto assets have a built-in loss because their tax base is more significant than their current market value; therefore, a donor may wish to sell the cryptocurrency for cash (at a principal loss) and then donate that money to a charity or non-charity organization. The donor can use this capital loss to offset any capital gains taxes it may have from transferring the same value to the charity or non-charitable organization.
If a donor makes a Crypto Charity with an embedded loss to a non-charitable organization, the potential embedded loss tax deduction is lost. This is because the general rule that transfers the tax base from the giver to the recipient does not apply to loss-making assets that the gift recipient sells at a loss. Instead, the tax base of assets sold by the donation recipient is limited to the fair market value of the assets at the time of the donation.
Will I get a charitable deduction?
Individuals who itemize deductions may be entitled to a deduction for Crypto Donation they make to specific charities. Entitlement occurs when an individual's itemized deductions exceed their standard deduction.
Does my choice of charity or non-charity accept cryptocurrency?
More and more charities are partnering with cryptocurrency payment/donation platforms such as BitPay, and Coinbase Commerce to facilitate donations made in crypto charity.
For those who still want to donate crypto assets to organizations that do not accept them, one option may be a donor-advised fund, also known as a donor fund. One of the largest donor funds is situated in the United States.
After receiving the crypto charity, the donating fund can sell the cryptocurrency for cash without paying taxes. All of the fiat value—minus fees—of the cryptocurrency being traded can grow in the donor's fund or be donated to any charity of the donor's choice (hence the donor-advised referral). Although companies have a funding/donation minimum, they can provide additional options for those looking to make donations from their cryptocurrency funds.
After deciding which charity or non-charity is worth your donation, your tax position may also be worth some thought. Although there are some twists and turns to the thought process, it all starts with some basic questions about whether the crypto donation has been appreciated or depreciated and the nature of the recipient. Thinking through both tax and non-tax considerations of a donation can maximize the overall benefits for both the donor and recipient or at least put the giver in control of striking the right balance.