Donating Bitcoin To Charity

In recent years, Bitcoin has received much attention in the realm of virtual currencies.  This is partly because of its incredible growth in value, going from less than $1 in 2011 to nearly $1,000 at the end of 2013. 

Along with the growing popularity of Bitcoin, the number of charitable organizations that accept virtual currencies has been growing.  Simultaneously, virtual currencies have been under scrutiny by the government.  In March, the Internal Revenue Service issued an opinion on the taxation of virtual currencies, ruling they should be treated as property rather than currency.  That creates administrative problems for Bitcoin users, while also allowing donors to obtain generous charitable income tax deductions for donating Bitcoin that is worth more than they paid for it. 

If you plan on making a charitable donation with your virtual currencies, it is important to understand the process.  You first must determine whether the charity you want to donate accepts virtual currency; then donate the currency; finally, determine the value of the charitable deduction. 

When determining your tax deduction, the IRS allows different deductions depending on the period of time that you held the property.  If you held Bitcoins for more than a year, you can deduct the full fair market value of the donation, up to 30 percent of your adjusted gross income.  If you held the Bitcoins for less than a year, your deduction is only equal to the cost of Bitcoins to you, or their present value—whichever is less. 

See Janet Novack, How To Donate Bitcoin To Charity And Get A Big Tax Deduction, Forbes, Dec. 22, 2014.