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Get an Immediate Crypto Tax Deduction by Using Donor-Advised Funds

Shehan Chandrasekera, CPA

Nov 25, 2020 • 2 MIN READ

Donating cryptocurrency to charities is one of the handful of tax strategies that provides two benefits at once.

By donating cryptocurrency to charities:

  1. You get to bypass the capital gains taxes on appreciated cryptocurrency holdings and,
  2. You get a deduction on Schedule A which will reduce your both crypto and non-crypto taxable income

To unlock these benefits for the 2020 tax year, you need to properly donate your cryptocurrency to the charity of your choice before the end of the year.

But, what if you need more time to pick a charity and can’t donate before the end of the year? This is where Donor-Advised Funds (DAFs) come in handy.

What is a Donor-Advised Fund for cryptocurrency?

A Donor-Advised Fund is a special fund to which you can donate your cryptocurrency to get an immediate tax deduction. This fund can later donate the funds to the charity of your choice.

You can contribute to a DAF as frequently as you like, and then recommend grants to your favorite charities whenever it makes sense for you. Once the funds are deposited, they cannot be returned to the donor or any other individual or used for any purpose other than grantmaking to charities.

DAFs are useful when you need to lock in your charitable contribution tax deduction for the current tax year and bypass capital gains taxes but you don’t know which charity to donate funds to at the donation time. It is also useful in tax years where you want to lock in a higher charitable donation deduction but don’t necessarily want to grant a large chunk of your funds to the charity at once.

Endaoment.org is a platform where you can create your own DAF and contribute crypto to lock in the tax benefits.

The amount of the tax deduction you get depends on how long you held the crypto before contributing to the DAF. Generally speaking, by contributing appreciated assets you have held for more than 12 months, you can save the most amount of capital gains taxes and maximize your tax deduction on Schedule A. If you donate assets which you held for less than 12 months, your deduction will be the lower of your cost basis or the market value at the time of the donation.

If you have any questions or comments about crypto taxes let us know on Twitter @CoinTracker.


CoinTracker integrates with 300+ cryptocurrency exchanges, 3,000+ blockchains, and makes bitcoin tax calculations and portfolio tracking simple.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.

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