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With cryptocurrency’s high market cap, donors are eager to support nonprofit organizations they care about by donating cryptocurrency. Cryptocurrency, also known as crypto, is a tax-efficient way for donors to make gifts, and nonprofits that take advantage of this new giving vehicle have a lot to gain.
In this article, we’ll demystify cryptocurrency and address some concerns about implementing crypto donations. Let’s begin.
What is cryptocurrency?
In a nutshell, cryptocurrency is digital money. Its main difference from fiat currency, such as the United States dollar, is that there is no central authority printing or governing the money. When cryptocurrency exchanges hands, transactions are verified and recorded in a decentralized ledger such as a blockchain, rather than a bank.
There are thousands of different types of cryptocurrencies. Some of the most popular include Ethereum and Bitcoin, which are valued at thousands or tens of thousands of U.S. dollars per “coin.” The value of a coin is determined by market demand based on crypto exchanges, which take place on platforms such as Coinbase or Gemini. Much like stocks, these coins can appreciate in value.
Benefits of cryptocurrency donations
For donors, the main benefit of donating cryptocurrency is tax breaks. Donors can avoid the capital gains tax they would otherwise incur by selling their crypto by instead donating it to a nonprofit, as the Internal Revenue Service (IRS) currently treats crypto donations similarly to stock. And for donors gifting crypto that they’ve held onto for at least one year, they may be able to deduct the fair market value of that crypto on their taxes. This allows them to make donations much larger than they would normally be able to.
Nonprofits also benefit from crypto donations in multiple different ways. Crypto donations help to diversify your revenue stream, and you’ll be able to receive larger donations than usual because of crypto’s appreciable nature. Furthermore, crypto donors represent a new donor segment or a demographic that is untapped by many nonprofits, who tend to be young, affluent, and highly interested in new technologies. Accepting cryptocurrency donations will go a long way to creating relationships with this donor demographic.
Barriers to accepting cryptocurrency donations
While your nonprofit may be open to accepting cryptocurrency donations, there are some technical barriers. These barriers include accepting crypto donations securely, issuing receipts, and exchanging crypto for cash. While platforms exist to help ease these transactional burdens, there are also operational considerations to make as a nonprofit.
Regulations regarding cryptocurrency are still in flux, and the Financial Accounting Standards Board (FASB) has only recently begun issuing accounting guidelines. There’s also additional tax paperwork that nonprofits have to file when accepting crypto donations.
Make sure to weigh the benefits and barriers to accepting cryptocurrency donations to make an informed decision for your nonprofit. If you’re not able to accept crypto gifts right now, you will be able to re-evaluate in the future when your nonprofit has more resources to allocate to researching and managing these new donations.
Cryptocurrency donations and donor-advised funds
If you’re worried about implementing cryptocurrency donations for your nonprofit, consider partnering with a donor-advised fund. Currently, these funds are the best place for donors to make their crypto donations, as they generally have the resources and knowledge to receive and liquidate non-cash assets. They then take the funds and donate them to nonprofits on behalf of the donor.
Keep in mind, however, that donor-advised funds are not obligated to follow the donor’s wishes regarding which nonprofits they make gifts to. Working with these funds may be a temporary solution, while your nonprofit researches how to accept cryptocurrency donations directly. That way, donors can enjoy the benefits of making crypto gifts, and you receive more funding!