Several people are charitable and one of the benefits for such charitable people is that of cryptocurrency investment. If they make investments in Bitcoin and Ethereum and have held the coins for more than one year, then they get a chance to have highly profitable assets and can have a great impact if they are donating the cryptocurrency to a charitable institute. If you have been holding cryptocurrency investments for a long term and are interested in Donor Advised Funds canada, then you can donate them and it will open up ways for add-on funds for charity in two ways.
Extra Funds for Charity –
One of the benefits that you get on stock and crypto donations is that you can avoid capital gains tax on the same. Add-on funds for charity can come in 2 ways – first, you remove the capital gains tax that you would have incurred if you sold the assets yourself and then donated the proceeds and it will increase the amount that is available for social causes by 20%. Second, if you enumerate the deductions on your tax return rather than taking a standard deduction, then you can get a fair market value charitable deduction for the year of tax, in which you made the gift and you may choose to transfer those savings in the form of giving.
Donor-Advised Funds –
Funds that are donor-advised, and comes under 501(c)(3) i.e. public charities, can be a tax-efficient explanation for compliant contributions of cryptocurrency, as the funds are capable of resources, and expertise for liquidating, processing, receiving, and evaluating non-capital assets. Now, many people have this question as to how making gifts is a better cryptocurrency for a fund that is donor-advised?
Please understand that gifts can have complex tax analysis and advanced planning if appreciated as non-capital assets which include cryptocurrency too. Besides that, all gifts given to funds that are donor-advised are irrevocable. It is important that you consult a tax or legal advisor for the same.
Example of Donations –
Let us take the instance of making huge gifts while enhancing tax savings –
Here we will take the example of Alina, who bought 10 Bitcoin 5 years back at $400 each, for a $4,000 cost basis. Then, five years later the value of Bitcoin is $24,000 per coin, so the total fair market value of Alina’s 10 Bitcoin investments is $240,000. Here Alina can sell her Bitcoin and donate the net cash or total proceeds to a fund that is donor-advised or other charitable organization. Besides that, Alina can eliminate the 15% capital gains tax ($33,600), while potentially getting a present year income tax deduction for the fair market value ($240,000) assuming that Alina itemized the deductions.