How Your Nonprofit Can Accept Gifts Of Cryptocurrency
You might be thinking that, on top of all the other fundraising tactics that nonprofits must understand, the added trouble of figuring out bitcoin donations isn’t worth it. Nonetheless, by 2021, cryptocurrencies will have achieved and maintained a valuation of over $2 trillion, and many people will be sitting on highly valued coins with little uses. On the other hand, the IRS encourages crypto donations in the same way that it encourages stock donations. Donating cryptocurrency is a nontaxable event because it is considered property. This means that donors don’t have to report capital gains and can possibly deduct up to the fair market value of the donated asset if they itemize deductions.
Accepting bitcoin isn’t as complicated as you would think, and it can help your nonprofit reach out to new supporters.
The IRS classifies cryptocurrency (or virtual money) as property (rather than currency) for tax purposes, and it is subject to the same restrictions as non-cash charitable gifts. If your donor gives more than $500 in cryptocurrencies, they must file a Form 8283 with their tax return.
Your nonprofit should explore receiving bitcoin donations, and if it already does, you should have updated your gift acceptance rules to include guidelines for these types of donations. Most nonprofits don’t think about cryptocurrencies until a donor offers to make a bitcoin or ethereum gift. Still, many don’t have the structure or rules to facilitate these transactions.
The acquisition of cryptocurrency is growing exponentially, with immense growth potential. The top ten cryptocurrencies have a market capitalization of over $1 trillion, and there are over 100 million active cryptocurrency users.
Making a plan to accept cryptocurrency donations helps ensure that your organization does not miss out on a potentially significant source of future revenue. To be completely transparent, I am a Certified Bitcoin Professional (CBP) with experience counseling nonprofits and their contributors on these types of gifts. Consider the following factors while accepting cryptocurrency donations for your nonprofit organization:
Donor Benefits
Can you convey to your contributors the advantages of donating cryptocurrency? The most significant benefit is the avoidance of capital gains tax. The majority of your high-value bitcoin donors bought it for pennies or fractions of pennies. They would face tax on the difference between the market value and the acquisition price if they sold their bitcoin. A donor can assist your cause while avoiding capital gains tax by donating it to your nonprofit.
Your donors may also be eligible for a market-value tax deduction (if the currency has been owned for a year). Any unused deduction can be carried forward for a total of five years of tax advantages.
Donors should consult with their professional advisors regarding the tax implications of these gifts.
IRS Requirements
The IRS classifies cryptocurrency (or virtual money) as property (rather than currency) for tax purposes, and it is subject to the same restrictions as non-cash charitable gifts. If your donor gives more than $500 in cryptocurrencies, they must file a Form 8283 with their tax return. In addition, a qualified appraisal is required for contributions exceeding $5,000. The IRS has yet to say whether cryptocurrency qualifies for the appraisal exception for securities.
Gift And Sale Options
Most Nonprofits begin by accepting bitcoin and maybe ethereum donations. However, nonprofits that actively sell cryptocurrency may also earn increased volumes of lower-value coins and tokens, such as bitcoin cash, litecoin, and ripple, in addition to higher-value coins and tokens.
When a nonprofit is initially presented with cryptocurrency, it is natural to think it will require a wallet. Simply said, a wallet is a location where you may receive and keep your cryptocurrency. Setting up an institutional wallet with Coinbase, Gemini, or another exchange is simple for a nonprofit. On the other hand, nonprofits may find this process tedious and time-consuming (requiring the personal information of your leadership). As a result, using a third party is frequently the most straightforward method to get started.
Most Nonprofits want to sell the cryptocurrency they receive as soon as possible due to market volatility. A nonprofit can hunt for a buyer on an exchange, but it may be quicker to convert bitcoin to cash and deposit the revenues directly into their bank account using a payment processor like BitPay. GivingBlock also has a bitcoin contribution and sales application that can be put to a nonprofit’s website.
Large bitcoin gifts are processed free by Fidelity and Schwab Charitable (Schwab also accepts ethereum). In addition, the Dechomai Foundation of Charitable Solutions, LLC is a donor-advised fund (DAF) that sells this and other cryptocurrencies in larger quantities (usually $100,000 or more). After charging a small fee, it then distributes 100% of the cash earnings to a donor’s selected nonprofit.
Gift Acceptance Policies
Accepting cryptocurrency as a gift requires a stated policy at your company. The policy should spell out what your company will and won’t allow, including the usage of exchanges, wallets, and third-party services. Make sure your policy has a system in place for gift approvals. It’s usually advisable to appoint a single person to approve the acceptance and sale of the most popular cryptocurrencies. To make these selections easier, consider hiring a third party. Many Nonprofits form committees to make difficult decisions, like as whether or not to accept bitcoin that isn’t traded on a U.S. exchange.
Make sure your nonprofit’s policies are followed and evaluated regularly. Accepting bitcoin entails some risks, but those can be minimized with proper planning. Don’t pass up the opportunity to receive cryptocurrency donations for your nonprofit – the potential future payoff might be huge, and it could do a lot of good.
Learn more fundraising tactics in the Sunshine Certificate in Nonprofit Management class on Sustainability: Big Gifts, online on Saturday, February 26.
Sources:
Author: Kristen Jaarda – Forbes Nonprofit Council
https://www.forbes.com/sites/forbesnonprofitcouncil/2021/11/08/how-your-nonprofit-can-accept-gifts-of-cryptocurrency/?sh=f763d602952e
Author: Tina Roh – National Council of Nonprofits
https://www.councilofnonprofits.org/thought-leadership/what-your-nonprofit-needs-know-about-cryptocurrency-donations