Part Two. Read Part One.

Many in the crypto space have made their wealth in a short amount of time and are looking to give back to communities and impactful nonprofits they care about. Even in the current bear market, people are still donating. Many who have been involved in the space are self-taught and don’t necessarily have a financial planner or accountant they turn to for help with their taxes. As a donor, it’s important to understand which assets to donate and the tax benefit you can receive, all while maximizing charitable impact. 

There has been a recent narrative shift around crypto philanthropy, but Sam Bankman-Fried and FTX are not representative of the broader crypto space. There remain thousands of crypto holders who want to do good and create a more just society. We’ve seen this through the work of Endaoment, a community foundation built for the crypto space, which specializes in donations of digital assets (crypto and NFTs). Endaoment accepts more than 1,000 tokens in their native form, and delivers grants to nonprofits as U.S. dollars, allowing donors to offset their capital gains by taking a tax deduction while insulating charities from the risks of crypto.

Endaoment has been working closely with PlannerDAO, a global community of crypto-forward financial planners and professionals, to spread the word about its tax-advantageous platform to help clients with appreciated crypto assets. Nick Reilly, a PlannerDAO member and founder and wealth advisor at One Day Advice, works with many clients in the crypto space. Reilly summarizes his learnings for donors:

I have clients who have a lot of exposure to a specific cryptocurrency due to their employment through the company or project. In many cases, they are paid through their employer's native token and receive extra equity compensation in the form of that same token. 

For clients who are already charitably inclined, there’s a great opportunity to reduce their taxable income here. I have helped clients who were early employees within these companies to use their highly appreciated positions to donate to charity and maximize the given tax deduction on their income. This methodology is preferred over donating tokens that they receive in the form of current income because those specific tokens haven’t had a chance to appreciate yet. This is especially true if the tokens have depreciated in value in the short term as we are seeing through this current bear market. In that case, they benefit significantly from selling or exchanging those positions for a loss that can help offset other capital gains they may have across their portfolio of assets.

Three Steps for Year-end Giving with Crypto:

1. Maximize Your Tax Benefits*

As a taxpayer, you get rewarded for making charitable contributions through the benefit of not paying capital gains tax and receiving an income tax deduction. It’s important to specify the tax lots of the cryptocurrencies that you would like to donate. In accounting, a tax lot consists of a specific transaction: Date, time, and fair market value at the time of purchase, which becomes your cost basis. You need to ensure you have a complete set of transaction records and it needs to be done on a per account or per wallet basis, as you can’t just specify tax lots to donate from your entire pooled assets. For instance, you wouldn’t want to donate Ethereum that you recently purchased through an exchange if your appreciated Ethereum is held in a separate wallet. While the tax deduction is a huge benefit, you are typically limited to deducting up to 60% of your adjusted gross income (AGI) in any given tax year, with any excess amount able to be carried forward for up to five future tax years.

2. Onboard Your Favorite Nonprofit into the web3 Space

Endaoment is free for nonprofits and delivers grants in U.S. dollars. Nonprofits can navigate to Endaoment and search by their name or EIN number. They then “claim” their organization by providing their contact and banking information so there’s an end-point for donations. Endaoment then provides nonprofits a donate button and marketing assets to start spreading the word to their existing donor base. 

3. Join the Year-end Giving Trend

Fifty percent of nonprofits receive the majority of donations from October to December. Many donors decide to give at year-end for tax reasons which can allow the benefitting nonprofit, depending on their fiscal year, to plan ahead for the coming year. If you don’t know what nonprofit you want to support directly, consider opening up a crypto donor-advised fund that allows you to receive your tax deduction while taking the time you need to decide on impactful nonprofits to support. 

*Note: Endaoment does not give tax advice. Please consult a tax professional when determining how a gift of crypto could affect your taxes.