June 6, 2014

The IRS is never too far behind the trend when it comes to new forms of tax revenue, and with their recent tax stipulations regarding virtual currency, it’s time to consider the charitable giving opportunities with Bitcoins. The IRS specific rules relate to any virtual currency that is used to pay for goods or services or those that are used for investment, so Bitcoins isn’t the only possible form, but it’s certainly the most popular.

(Photo Credit: forbes.com)

What’s important from an IRS perspective is that the sale or exchange of Bitcoins and other types of virtual currency could signal a taxable event or tax liability. It’s treated as property under IRS regulations and an owning individual must consider the fair market value in computing their gross income. There are several different ways that you might think about gifting in terms of Bitcoins, so here are some ideas and the possible tax consequences:

• Outright gifts held long term to a public charity: Considered a fair market value contribution, deductible up to 30 percent of adjusted gross income.
• Outright gifts if the donor is a creator/miner of Bitcoins: This could be considered ordinary income and not property under “capital gains”. Up to 50 percent of AGI deductible at cost basis.
• Outright gifts held short term to public charity: Cost-basis contribution, meaning that this is deductible up to 50 percent of AGI.
• Substantiation with receipt: The donor requires a receipt describing the gift here and it’s treated like all gifts of $250 or more.
• Substantiation with appraisal: Form 8283 and a qualified appraisal is required here.

To learn more about gifting strategies, reach out to us at info@lawesq.net or contact us via phone at 732-521-9455 to get started.