Cryptocurrency Donations To Nonprofits: What You Need To Know

crypto donations

By: Whitney Hodge

Published: October 26, 2021

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Cryptocurrency is gaining credibility in several financial sectors. You’ve probably heard the headlines filling the social media timelines and news and have maybe even wondered how this will affect the future of finance for businesses. Maybe you’ve decided you would like to start accepting cryptocurrency donations for your nonprofit.

If you’ve been straddling the fence about whether or not to accept crypto donations for your nonprofit organization — now is the time to choose. 

Of course, you should not jump blindly into the world of crypto. The better you understand the potential risks and rewards, the better poised you are to make a choice in your nonprofit’s best interest.

The Risks of Accepting Crypto Donations

Donations in fiat currency are made with the strict understanding that the value of one dollar today is one dollar tomorrow, so to speak. That is not the case with digital currency. The dollar is always worth one dollar because there is a centralized authority that says so. Cryptocurrency operates on a peer-to-peer network and doesn’t enjoy the same consistent value the dollar does, fluctuating with much more volatility, and experiencing highs and lows much like the stock market.

Accepting cryptocurrency represents a greater risk to nonprofits because there is so much volatility in the currency’s value. The values fluctuate minute by minute. Fluctuations can be excellent news if, for instance, the value of your donations were to suddenly increase in value by 10, 20, or even 30 percent in a single day. On the other hand, it could also decrease by that much, or more, in the same amount of time.

It is this same volatility that makes cryptocurrency attractive for people to donate. Many people prefer donating crypto to avoid the risk of capital gains taxes should the value rise exponentially. 

Third-Party Facilitators –  How Can They Help?

Because there are so many wide fluctuations in the value of cryptocurrency, it can present a new level of risk for nonprofit organizations. For this reason, if you choose to accept crypto donations, it is wise to consider accepting these donations through third-party facilitators. There are a few great options available, including:

Platforms like these allow your organization to convert donated cryptocurrency into dollars before it has the opportunity to lose value.  Keep in mind that this also means you’re converting the currency before it has the opportunity to gain value as well.

Facilitators, like those mentioned above, often charge small fees for their services. These fees are similar to credit card transaction fees. You will also want to check with your accountant, bookkeeping services provider, and financial institutions for your nonprofit before you sign an agreement with a cryptocurrency facilitator, as some are reluctant to conduct business with virtual currency facilitators. 

Suppose you elect to accept direct cryptocurrency donations, and not use the services of a facilitator. In that case, this allows the possibility of appreciation for your donations (meaning they can gain value over time —  even in a single day). It also means you’ll need to create a digital wallet for your nonprofit either through your financial institution, and exchange, or a mobile app. 

Reporting Obligations for Cryptocurrency Donations

The IRS has strict regulations regarding nonprofits. When it comes to cryptocurrency, nonprofits must treat them as non-cash contributions. Regulations require that you fill out Form 990 and, if necessary, Schedule M. Schedule M is required in the following situations.

  • Noncash contributions exceeding $25,000 in value.
  • Historical treasures.
  • Qualified conservation contributions.
  • Art contributions.

Additionally, suppose you accept direct cryptocurrency donations and convert those donations into cash within three years of receiving them. In that case, you must file Form 8282 (the Donee Information Return) and provide the donor with a copy. If the donation amounts to $5,000 or more, your organization will need to sign the donor’s Noncash Charitable Contributions form, Form 8283. 

Why Now is the Time to Decide if Your Nonprofit Will Accept Cryptocurrency Donations

With more people making a move to cryptocurrency every day, it is likely that your organization will get the question, sooner rather than later, about whether you accept virtual donations. It’s only a matter of time. 

Taking the time now to learn the process and what it will mean for your accounting, bookkeeping, and tax needs means that you can have a fully informed answer ready when the question does arise.

You should also consult with one of the leading accounting firms in Fort Worth or CPA in Denton, TX, to make sure they can handle your accounting and tax reporting needs should your nonprofit choose to accept cryptocurrency donations.

Finally, before you accept crypto donations for your nonprofit, you want to make sure you have the appropriate infrastructure in place to provide adequate security for your crypto accounts and to comply with all security and reporting policies in place.

Trust Lloyd & Hodge With Your Tax and Accounting Needs

Running a nonprofit isn’t a walk in the park, especially when it’s time to figure out your taxes. There are numerous ways to reduce your tax liability, but learning the ‘secrets’ to tax savings can be near impossible if you aren’t familiar with the ins and outs of the US tax system.

Lloyd & Hodge know how stressful accounting and taxes are for many nonprofits, small businesses and sole proprietors. We know you’d rather focus on growing your business, and we understand that taxes are something most people would rather not think about. 

With proper planning, you can manage your effective tax rate and reduce your costs. Tax planning and restructuring services from Lloyd and Hodge are designed to protect your business’s financial future while maintaining compliance with all laws and regulations.

We can work with you remotely! We use the latest in technology and security so we can handle your accounts remotely without ever needing to make a trip to our office! Contact us today and find out how you can reduce your tax liability and plan for your future.

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