One of the things that you should know is that you should donate always directly your cryptocurrencies if you want to avoid capital gains taxes. Now, there is good news for the taxpayers and that is taxpayers can avert having to pay the capital gains taxes and still they can claim the complete donation like a charitable deduction only if they donate the Bitcoin straightway to the charity. The main point of difference between the purchase price and the selling price is the capital gains. If a taxpayer will sell his bitcoins and donate the cash (after tax deduction) to the charity, then the capital gains will be subject to long-term and short-term capital gains taxes.
The Term of Holding the Cryptos –
In crypto donations, it is also important and depends on how long the donor has held Bitcoin, before selling it and donating it. If you are a donor and you have held the assets for at least 1 year, then long-term capital gains tax rates of 0% and 15 to 20% will apply depending on the amount of income that is taxable. At ordinary income, short-term capital gains are taxed with a tax rate of 10 to 37%. Based on the amount of cash that the donor has donated to the taxpayer i.e., the donor can claim a charitable deduction. On the other ways if you see they are limited to $300 (single-individual) or $600 (married and filing jointly), above the line known as charitable deductions which come under the taxpayer Certainty and Disaster Tax Relief Act of 2020.
Fair Market Value –
Just like donations of appreciated securities, the donor can avoid paying the capital gains taxes if the donor donates the bitcoin straightway to the charity. Based on the fair market value of the Bitcoin, the donor can claim a charitable deduction. If they have held Bitcoin for a year at least and have itemized the deductions. If the donor makes a donation of more than $5,000 then they must get a qualified appraisal. To 30% of income, the charitable deduction is limited but excess deductions can be carried forward up to 5 years. The donor may have to file IRS form 8283 for donations of Bitcoin.
For $300 or more than $600 the donations of Bitcoin is not eligible for the line charitable deduction, since the above-the-line deduction is restricted to cash donations. Due to the complex set up many non-profit organizations are not able to accept direct donations of cryptos and mostly the complex wallet setting is digital.