Cryptocurrency has transformed the financial landscape since Bitcoin was launched on Jan. 3, 2009. As Bitcoin reached a price of more than $100,000 around December 2024, the use of digital assets as a financial tool, including crypto donations, has increased.
Accepting crypto donations allows nonprofits to engage with a younger audience that is tech-savvy. Nonprofits are organizations serving some social purpose without making profits.
Hence, donations and grants are very important to them. However, cryptocurrency brings technical challenges and regulatory considerations, particularly IRS compliance.
Below is a guide on using crypto donations to maintain your organization’s compliance with the IRS rules.
Who Donates Crypto to Nonprofits?
As more people adopt cryptocurrencies, the number of donors paying with crypto has continued to rise. According to The Giving Block’s 2024 report, the average crypto donation is now over $10,000— bigger than cash donations.
A Fidelity Charitable study found that 45% of millennial investors are aware of crypto donations. Furthermore, crypto whales (those holding large cryptocurrency balances) tend to donate appreciated assets to maximize tax efficiencies.
Other donor types include decentralized autonomous organizations that pool funds from their members and raise millions of dollars for charitable causes. Ethereum co-founder Vitalik Buterin’s $1 billion crypto donation to the India COVID-19 relief fund is a great example of how cryptocurrency continues to play a significant role in global philanthropy.
Why Should Nonprofits Accept Crypto Donations?
Nonprofits are integrating cryptocurrency into their fundraising for several reasons:
- Cryptocurrencies help nonprofits reach donors worldwide without going through traditional banking fees and delays.
- The adoption of crypto shows flexibility to a young generation.
- Blockchain technology makes transactions transparent, which raises donors’ trust and accountability.
- Donors may not have to pay capital gains taxes and can take a tax deduction.
Risks for Nonprofits When Taking Crypto Donations
While cryptocurrency donations present opportunities, they equally bring their unique challenges:
- Cryptocurrencies often lack identifiable donor information, complicating future engagement and raising regulatory concerns.
- The value of cryptocurrencies can see wild swings, forcing nonprofits to develop policies for converting or holding assets.
- Constant changes in tax and legal environments complicate compliance standards.
- Some cryptocurrencies, such as Monero, offer users high anonymity — a feature undesirable in jurisdictions with stringent regulatory requirements.
Nonprofits can mitigate these risks by conducting due diligence and recording detailed transactions.
How to Accept Crypto Donations
Crypto donation acceptance consists of a few easy steps:
- Choose a reputable wallet that can hold multiple cryptocurrencies. Hardware wallets are very secure, whereas web wallets are more convenient.
- Add a “Donate Crypto” button, include wallet addresses or QR codes, and list accepted cryptocurrencies.
- Collaborate with services like PayPal or Coinbase Commerce to secure donor information.
- Educate staff members on handling cryptocurrency transactions and ensuring compliance with legal and tax requirements.
Compliance with Relevant Tax Laws for Crypto Fundraising
IRS compliance is important for donors and nonprofits involved in cryptocurrency transactions.
Donors
The IRS treats cryptocurrency as property, so donations are subject to capital gains tax rules. Donors can avoid such taxes by deducting the fair market value of their donated assets.
Donors contributing over $5,000 must get qualified appraisals to claim tax deductions.
Nonprofits
Nonprofits should provide a receipt for crypto donations showing the USD value upon receipt. In addition, such donations should bear statements showing that no goods or services were exchanged.
If a nonprofit sells the received crypto assets within three years, it must file Form 8282 within four months to avoid penalties. For example, if it receives a donation of more than $5,000, the organization should give Form 8283 to donors so they can claim tax deductions.
US tax rates are usually between 0% and 20% for holdings over 365 days. However, short-term gains are taxed at 10% to 37%.
The Future of Crypto Donations
Instant, borderless transactions with reduced fees make crypto donations attractive for global giving. Countries like the US are leading the way in adoption, while Europe-based nonprofits, such as Amnesty International and the British Red Cross, are also jumping on the crypto donation bandwagon.
Other countries like Ukraine have also leveraged crypto to solve humanitarian crises. Advancements in blockchain technology and partnerships with nonprofits will drive crypto adoption.
With increasing awareness among younger, tech-savvy generations, crypto philanthropy could revolutionize global giving, offering transparency, efficiency, and innovation.
