What is cryptocurrency? Simply put, it’s money that’s not in a physical form, otherwise known as digital money. Nonetheless, it shares some of the same characteristics as paper money which can be earned, used, and invested.
Why should you care? According to Gemini’s 2021 State of U. S. Crypto Report, 21.2 million adults own cryptocurrency (crypto), with an additional 19.3 million expecting to purchase it in the next 12 months. That adds up to a lot of potential donors! But, to get the donation, you must be able to accept the gift. Here’s why that’s a good idea….
For the donor, the tax benefits of donating crypto can be significant. Why? Because donating crypto is like donating a car or a piece of art. None of these items must be sold to be donated. By avoiding a sale, the donor avoids taxable gains, which may be extremely attractive to someone who purchased crypto early on; and it gets even better. Not only can they avoid a taxable gain, but they may also be able to take advantage of a charitable deduction at the full market value of the crypto on the date of the donation. Win/Win/Win.
And it’s not just donors that make accepting cryptocurrency something worth considering. Certain foundations may begin designating crypto grant money. In 2017, The Pineapple Fund donated $55 million in Bitcoin to over 60 charities. Therefore, if your organization can accept crypto, it may qualify for unique grants.
But crypto seems confusing! It does, but it’s not. Accepting it is analogous to receiving a stock donation or a donation paid by credit card, depending on your chosen method.
You’ve convinced me. Now, what are the back-end processes I should put in place?
Although that sounds like a lot, most crypto will be considered an indefinite-lived asset, which means it should be tested annually for impairment, and more frequently if events indicate it is “more likely than not” impaired. With the volatility of crypto, these events could often happen throughout the year, possibly leading to an impairment loss that most certainly would affect your surplus or add to your deficit.
Since cryptocurrency now seems to have a permanent place in our lives and the news, it seems complicated and risky. Mining it, investing in it, purchasing it, and holding it are complex transactions that require considerable knowledge. However, for a nonprofit that is not interested in any of those types of transactions, obtaining the ability to accept it as a donation could increase your donor pool and escalate your annual donations.
Watch this Episode of Counting on Chazin to learn more about Cryptocurrency
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