Bitcoin owners had a very good year in 2017 as the cryptocurrency leapt from $1,000 in January to nearly $20,000 by end-of-year—which is probably why some of them are sharing their financial windfall.
Donors contributed nearly $70 million in Bitcoin and other digital currencies to their favorite causes last year through Fidelity Charitable, according to a new report by the organization, an independent charitable arm of the Fidelity investment bank.
This amounts to a nearly ten-fold increase from the $7 million that people donated last year, says Fidelity Charitable, which helps support more than 255,000 non-profits. The report didn’t, however, break out individual recipients or specify how much of the $70 million was in Bitcoin versus other digital currencies like Ethereum.
The Bitcoin bonanza is a welcome windfall for charities, of course, but the contributions are also a means for crypto investors to blunt the tax hit they owe on their new fortune. As Fidelity Charitable notes:
[the] ability to accept cryptocurrency donations allowed cryptocurrency holders to take advantage of the surge in appreciation to benefit charity. By donating these assets, the donors could eliminate the significant capital gains taxes on the appreciation while giving the full fair market value to charity [my emphasis]
As Coins2Day’s The Ledger explained in its Q&A on taxes, Americans who sold cryptocurrency last year—or even converted one type of digital currency into another—must pay the IRS the taxes they owe on any gains. As with stock sales, the amount owed depends on how long the currency is held. If an owner sells cryptocurrency after holding it less than a year, it’s taxed as ordinary income, while longer-term holdings are taxed at the lower capital gains rate.
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So far, however, a recent survey suggests some people may be ignoring advice to declare their Bitcoin profits. In a sample of early returns by Credit Karma, fewer than 100 tax payers out of 25,000 had declared a taxable event related to cryptocurrency.
Meanwhile, the IRS is ramping up enforcement efforts. This includes its a successful legal campaign to force Coinbase to turn over the names of customers, and a new campaign to track down cryptocurrency cheats.