As the cryptocurrency market booms, nonprofits should understand what this new form of digital currency means for donations and tax reporting, and why crypto is beneficial for the not-for-profit sector.
What is Cryptocurrency?
Although the concept might seem complicated, cryptocurrency is simply an additional form of legal tender that can be used to purchase services and goods.
Cryptocurrency is a completely digital form of decentralized currency. It is logged in a blockchain, where its data is spread out across multiple internet-connected devices. With a decentralized digital currency, individuals no longer have to rely on a financial institution to secure their money.
The most popular form of cryptocurrency is Bitcoin. This tender gained popularity in 2014 when large companies including Microsoft started accepting it as a form of payment.
Now the cryptocurrency marketplace is worth over $1 trillion dollars, with more than 100 million people using it for goods and services.
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Benefit of Accepting Bitcoin
The benefits of having your nonprofit organization accept bitcoin are convincing. After all, accepting crypto is an additional financial way for people to contribute to your mission.
The enhanced speed and security of accepting a decentralized tender is something that should appeal to donors. The fact that cryptocurrency donations are tax-deductible is another plus.
This new source of wealth with its rapid appreciation means a new pool of people who are rich in crypto (although not necessarily in cash.) As the popularity of decentralized digital currency grows, more people using the tender will be looking for ways to donate in a tax-savvy way.
How Your Organization Can Accept Cryptocurrency
You will need to set up an account with a crypto payment processor on a platform such as Robinhood, Coinbase, or BitPay for your organization to accept cryptocurrency. This will allow your organization to accept crypto and have it automatically converted into US currency for donations.
Once you set up your crypto payment processor account, you should advertise this new way of giving on your website. WordPress has plug-ins for Bitcoin donation buttons that you can add to your site’s donation page, making it obvious that you accept crypto.
You may also create an information landing page that will answer common questions people might have about the acceptance of cryptocurrency. Share this page and encourage your members to spread the word.
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Proper Tax Reporting for Crypto Donations
Proper tax reporting is important to take care of if your nonprofit is receiving cryptocurrency donations.
The IRS classifies cryptocurrency as property, like gold and stocks, rather than currency. Contributions valued over $250 require a non-cash donation receipt.
In order for the donor to receive a charitable deduction for a contribution over $500, they must file Form 8283: “Noncash Charitable Contributions.”
If the donation is valued at more than $5,000, the donor must receive a qualified appraisal, and your organization must also sign Form 8283.
Rules and regulations regarding tax-reporting of cryptocurrency donations are continuously developing, since this is a new practice. Keep informed and up-to-date.
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Contact Jacobson Jarvis Today!
Jacobson Jarvis has 30 years of experience assisting organizations with their nonprofit financial and accounting needs. If you want to connect and see how we can help your nonprofit organization thrive, contact us today!
Featured image via Unsplash
