How donating bitcoin and other cryptocurrencies directly to charity increases the size of your gift
Before you sell bitcoin and donate the after-tax proceeds, consider donating your bitcoin directly to charity. This model includes two significant benefits, both for you and the charity:
There’s another upside to donating bitcoin to a public charity with a donor-advised fund program such as Fidelity Charitable: the opportunity to recommend how the contribution is invested and potentially grow it tax-free, ultimately providing greater charitable/philanthropic support.
Did you know?
Fidelity Charitable accepts a wide range of cryptocurrency, including Bitcoin, Bitcoin Cash, Ethereum, Litecoin and Ripple.
Contributing bitcoin to Fidelity Charitable means your tax deduction and your charitable gift may instantly increase over 20%. Charities are exempt from paying capital gains on the sale of assets, so the full value of your gift stays intact. Consider this example:
1This assumes all realized gains are subject to the maximum federal long-term capital gains tax rate of 20% and the Medicare surtax of 3.8%. This does not take into account state or local taxes, if any.
2Amount of the proposed donation is the fair market value of the appreciated property held more than one year that you are considering donating as determined by a qualified appraisal.
3Assuming a contribution of 100 bitcoin. Alex’s tax basis assumed to be $100/bitcoin. If Alex sold 100 bitcoin for $250,000, he would have $240,000 in capital gains and would pay $57,120 in tax.
Supporting a cancer center that helped a family member.
Making a sizeable donation to your alma matter.
In 2013, Alex began working for a small start-up that was focused on leveraging a new technology called Bitcoin. As a developer and co-founder, he opted to be paid in bitcoin. At the time, one bitcoin was worth $100.
In 2017, he realized his bitcoin appreciated to twenty-five times the value of when he got it. Wanting to make a significant charitable contribution to the cancer center that helped his father battle lymphoma, Alex knew that if he sold some of his bitcoin now, he would have to pay capital gains tax on the appreciation because he acquired it and started holding it for investment purposes two years ago. Then he heard that Fidelity Charitable could accept bitcoin as a charitable contribution.
He made a contribution of bitcoin in-kind, which was worth about $250,000 at the time, to Fidelity Charitable, as opposed to selling the bitcoin and donating the after-tax proceeds.
Fidelity Charitable, a tax-exempt public charity, sold the bitcoin without having to pay any capital gains tax. In addition, Alex would generally be entitled to claim a fair market value tax deduction for the contribution.4 As a result, Alex is able to support his favorite charities by way of grant recommendations and he could claim a higher deduction than if he only donated the after-tax proceeds of his sale of the bitcoin.
By contributing the shares to Fidelity Charitable, they were able to eliminate their capital gains tax exposure and take a charitable deduction in the amount of the fair market value of the shares.
Due to these tax efficiencies, with his Giving Account, Alex was able to dedicate an additional $57,120 for charitable use.
Alex realized that by contributing bitcoin to Fidelity Charitable, he could lessen his capital gains exposure and claim a higher tax deduction than if he sold the bitcoin and donated the after-tax proceeds. Furthermore, after the bitcoin contribution was accepted, Fidelity Charitable sold the bitcoin and allocated the cash proceeds to Alex’s Giving Account without transaction fees being taken from the proceeds. This enabled Alex to recommend a sizable grant to the cancer center. He also realized that he would have additional funds available for a grant recommendation next year to his alma mater. Alex was pleased with the ease and efficiency made possible by using his Giving Account and contributing bitcoin electronically.
4Fair market value of the bitcoin, as determined by an independent qualified appraiser, must be reported to the IRS by the donor on IRS Form 8283.
This hypothetical case study is provided for illustrative purposes only. It does not represent an actual donor, but is meant to provide an example of how a donor-advised fund can help individuals give significantly more for the causes they care about.
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