To be fair, it is not just stock, pretty much any asset that you’ve owned for more than a year can be donated. You avoid capital gains tax and get to deduct the fair market value off your taxes.
Thrag
1849
It’s a currency! It’s a speculative investment!
It’s a floor wax! It’s a desert topping!
you have the charity feed and pay for all your utilities and boy scout fees and whatnot.
*I am not an accountant
Aceris
1852
Oh for fucks sake.
So it does work kind of. You sell $10k BTC and realise a $5k gain, incurring a $1k tax liability (gain and marginal tax rate picked arbitrarily for the sake of the example). You then donate $5k BTC, incurring a $1k tax credit.
Of course this only makes sense if:
- You want to make charitable donations anyway and this is a tax efficient way to do so.
- You have established a fraudulent chairty from which you personally benefit
- You believe paying fiat money to the government causes the vaccine chips in your brain to synchronize with the alien mind control network.
Otherwise you could just sell another ~$1.1k BTC and pay the tax liability in dollars.
Bear in mind I know almost nothing about the US tax code, this is outright curiosity:
Can you only deduct 20% of the donation? The little I’ve read seems to indicate you can deduct 100% of the donation as long as it does not go over a certain percentage of your gross income. If so, you can donate $1k worth of BTC to offset $1k of tax liability. If a donation of $5k BTC incur only a $1k tax credit there’s no loophole indeed.
Aceris
1854
A tax deduction is not a deduction from tax, but rather a deduction from the income that must be taxed. I was confused too!
this makes sense. It’s sort of a non issue then.
Thus donating half your Bitcoin earnings to offset your remaining Bitcoin income (which is all that is recognized as income at that point) to fully offset the tax bite.
This is limited by the 60% maximum of total income rule, however. But it could still reduce a lot of taxes, especially if you are deducting just income in the top brackets.
No, if you have 10k in Bitcoin, cash 5k and donate 5k you are left with 5k. I’d you cash the full 10k you are left with 8k. Donating loses you money, which is the point. It just loses you less due to the tax deduction.
Timex
1858
This isn’t how it works, man.
Imagine you have 100k in income, and owe say 50k in taxes on it.
If you donated 50k to charity, that doesn’t mean you owe 0.
That means your income is now 50k. Now you owe taxes on 50k in income.
No, if you have 100k earning in income and cash 50k and donate 50k, you are left with an income of 30k (60% of the original) since the 50k you donate don’t compute as income but deduct from your other income.
Thus you pay taxes on 30k instead of 50k.
The “optimal” move in that hypothetical to maximize a deduction would be donating about 30k so your taxable income is about 43k (not exact, I’m running the calculations from my head). You save around 6k in taxes. You pay about 8.6k from that income, so your net cash position is 61.4K or so.
But you have donated 30k. Which is 24k more than what you have “saved”.
If you cash the full 100k you are left with 80k, which is still more money than you can get by using any charitable donation reduction. About 18k more.
So unless you really think the kick of not paying any taxes is worth a loss of 18k or so, it makes no sense to do this for a maximizing profits standpoint.
Now, given the libertarian leanings of those heavily into crypto, they might find the “screw you” to the government worth the loss?
Edit: there could be cases where it’s a better deal (still a loss, though), if you are offsetting income taxed at a much higher rate. Let’s say you make a million in labor income (salary). You have a shitload of money taxed at close to 40%. Let’s say you have 100k in bitcoin and donate that. Instead of the 80k capital gain you would have cashed after taxes, you deduct 40k in taxes from your higher taxable income (that income becomes 900k so there’s 100k you don’t pay taxes for), so basically you only lose one of every two dollars you donate. Still worse off in pure profit terms, of course.
Timex
1860
I don’t know what you are trying to say here, but it’s not right.
If you have 100k in income, and donate 50k, your income is now 50k, not 30k. You pay taxes on 50k.
The 60% limit people are talking about is an upper limit on how much you are ALLOWED to deduct from your income via charitable donations.
That is, of you have 100k in income, and you donate 80k, you are only allowed to deduct 60k from your income, and you still need to pay taxes on 40k.
Yes, this is a more detailed example but what I understand of it.
I think in the crypto community there are people for whom crypto is their entire source of income, so there is a preference to donate what you can to avoid having to write a check to pay the IRS, given there is no regular monthly withholding on capital gains. There are certainly lots of guides on how to gift or donate capital gains, crypto and otherwise, to reduce taxes paid. This includes on traditional asset managers websites like Fidelity.
One other point that I think may matter for some, including the wealthy outside of crypto, is you get to choose the charity. That could be a values based choice, or related to some sort of corruption, etc. You might be buying favor with high society instead of writing a check to the IRS. Lots of flexibility. Not saying it’s “right”, just that it’s how the tax code works.
Another point - a large gift in one year can be used to deduct from taxes for up to 5 years. So you could make a huge donation when your pool of Bitcoin is worth 65k per coin in 2021, then deduct from your regular income over the next 5 years.
Donations are deductible on income. But donations of non monetary assets avoid being treated as income since the capital gain is never triggered.
You have 100k worth of BTC, but that’s not income until you cash it. by donating 50k of that and cashing 50k, you have an income of only 50k.
But the 50k you are donating are deductible, that is your gross income gets deducted by the amount of the assets you donated, even if they never were income.
Now, you can’t deduce more than a percentage of your total income, so unless you have other sources of income, you can’t bring your taxable income down to 0. But if you had another significant source of income (say 150k in wage income), you would pay no taxes on those 50k.
Now, you only save 10k in taxes (20% capital gain tax), but have donated a potential 50k of further income, thus you are losing money (30k), but you can avoid paying those taxes.
Timex
1863
Ah, ok, so you are only talking about specifically avoiding capital gains.
That makes it kind of moot in terms of the original discussion about taxes, because we were talking about paying income taxes, and how you need to have USD to do so.
Capital gains are a form of income for some people. For some people, their only form of income.
Anyway, the original point was the IRS recognizes crypto donations as valid in this case. Some critucs here have made appeals to authority that because crypto isn’t recognized it somehow is invalid. Well, it is recognized. And there is some utility to the people holding it, despite all the gnashing of teeth to the contrary.
Timex
1865
The original point was that the USD is fundamentally different than BTC, because you are required to pay your taxes in USD.
CraigM
1867
Yeah it is not an appeal to authority to state that one of the aspects that gives credibility to any currency is the ability to pay taxes with it.
That is literally the foundational aspect of how paper currency was developed in England and France. An institution, such as a bank, made promissory notes of deposits. Those banks were politically connected and the governments started to accept those paper notes in lieu of hard currency or goods as a form of tax payment.
And now you have paper money.
