Avoid U.S. Taxes on Bitcoin. Give to Charity.

[allgoodthings1]

With all the moaning and complaining about the impact of the recent IRS statement on the tax-ability of bitcoin, most have overlooked one good outcome of this clarification. One that hopefully will unleash even more philanthropy in our bitcoin community.

Under current IRS guidance, dispositions (sales and spendings) of bitcoin are a taxable event. Bitcoin is property and when it's sold or spent, an individual must calculate the gain or loss on that transaction and report it as a capital gain or loss on his/her Federal Income Tax filing.

Except for this: Bitcoin that has been held for more than a year and gone up in value can be donated to a recognized charity without having to report any taxable gain to the IRS; what's more, one can take a deduction for its full market value at the time of donation. Donations of appreciated bitcoin held a year or less are still deductible, but their gains in value must also be recognized (and taxed).

This often overlooked fact turns a significant negative into a strong positive. Don't sell or spend profitable long-term holdings of bitcoin. Inasmuch as you can, donate them to charity and buy yourself a double tax break with your generosity.

There is a long section on Contributions of Property found here: http://www.irs.gov/publications/p526/ar02.html#en_US_2013_publink1000229703

Here you'll find more specific information in the sections Giving Property That Has Increased in Value -- Ordinary Income Property & Capital Gain Property: http://www.irs.gov/publications/p526/ar02.html#en_US_2013_publink1000229755

The IRS Guidance Summary is here: http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance

Example: Let's say in 2014 you have taxable income of $100k and thus you were in a 25% marginal tax bracket; and you itemize deductions on Schedule A. You have $3000 worth bitcoin (present value) to sell/spend or donate; for those coins, you paid $1000 more than a year before.

If you sell or spend those bitcoin, you will pay $300-560 in Federal taxes ($2000 gain X 15-28%), depending on what tax rate is applied. And you might also pay state income taxes; at say 5%, that's another $100.

If you donate the $3000 worth of bitcoin to a charity, you pay no Federal or state tax, and you pick up a tax benefit of $750 in the Sch A deduction of $3000; that is, $3000 X 25%.

References: See what T. Rowe Price and Fidelity have to say about this strategy.
http://programforgiving.org/charitable/pages/donatingAppreciatedAssets.jsp
http://www.fidelitycharitable.org/giving-strategies/tax-estate-planning/appreciated-securities.shtml

Illustrations: http://greenpeace.givingplan.net/pp/deciding-what-give/2988

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[beetcoin]

so this brings up an interesting topic.. if you want to evade paying taxes and have a lot of bitcoins, just start up your own non-profit charity.

[allgoodthings1]

so this brings up an interesting topic.. if you want to evade paying taxes and have a lot of bitcoins, just start up your own non-profit charity.

To be clear, we're not talking about tax EVASION. We're talking about tax AVOIDANCE. And your suggestion would only work if you actually gave your income to that formed charity, in the same way as you'd give it to any other non-profit -- relinquishing all personal direction or control over what the non-profit does with those funds. The IRS doesn't allow any tax evasion shell games here. That formed non-profit would be very much under the IRS microscope for donations made by its founder.

[beetcoin]

so this brings up an interesting topic.. if you want to evade paying taxes and have a lot of bitcoins, just start up your own non-profit charity.

To be clear, we're not talking about tax EVASION. We're talking about tax AVOIDANCE. And your suggestion would only work if you actually gave your income to that formed charity, in the same way as you'd give it to any other non-profit -- relinquishing all personal direction or control over what the non-profit does with those funds. The IRS doesn't allow any tax evasion shell games here. That formed non-profit would be very much under the IRS microscope for donations made by its founder.

well i'm nowhere near being an expert on this topic, but i thought a lot of people used non profit charities as a tax shelter.. here's a link on what the IRS said in 2005 http://www.washingtonpost.com/wp-dyn/articles/A26388-2005Apr4.html

[allgoodthings1]

..but i thought a lot of people used non profit charities as a tax shelter..

Legitimate donations to non-profits is a great "tax shelter" -- which is the point of my original post vis a vis bitcoin. Evasion and abuse are birds of a different feather. And we can all be thankful the IRS has come a long way since 2005; still not far enough, but a long way forward in finding and prosecuting abusive tax evasion schemes.

[Ron~Popeil]

Just don't convert to fiat and you are in the clear either way. Long term that is probably the best return on investment as well if BTC goes "to the moon" as we all predict.

[beetcoin]

Just don't convert to fiat and you are in the clear either way. Long term that is probably the best return on investment as well if BTC goes "to the moon" as we all predict.

i think you are still liable for paying taxes once you use the bitcoins though. bitcoin is treated as an asset by the IRS, not a currency.

[haploid23]

It's funny how the government won't back you up if you lose money in bitcoins, but they'll readily take a cut if you make money.

Here's a better idea. Rather than giving it to charity and personally get nothing from it, just spend it however you'd like and just don't report it for tax. There's no easy way to enforce taxing on this... not with the current technology. The infrastructure and cost to enforce this would be huge.

[allgoodthings1]

i think you are still liable for paying taxes once you use the bitcoins though. bitcoin is treated as an asset by the IRS, not a currency.

Yipes! Me thinks you missed the whole point of the post. Carefully explained and documented is the fact that, NO, you are NOT liable for paying taxes on the bitcoins you donate that have been held more than one year. There's no I think / you think about it. Just give them to the approved non-profit directly -- without selling them first -- and owe no tax on the transaction.

[beetcoin]

i think you are still liable for paying taxes once you use the bitcoins though. bitcoin is treated as an asset by the IRS, not a currency.

Yipes! Me thinks you missed the whole point of the post. Carefully explained and documented is the fact that, NO, you are NOT liable for paying taxes on the bitcoins you donate that have been held more than one year. There's no I think / you think about it. Just give them to the approved non-profit directly -- without selling them first -- and owe no tax on the transaction.

i wasn't talking about donating though.. but i did go off-topic a little bit. was responding tothe poster above me.

[serenitys]

ORRRR

we can push for mass adoption and force the IRS to explain why it figures it has the right to money it did not provide, earn, or distribute.

And "just because we fucking said so" isn't the correct answer.

If you understand the power leverage bitcoin returns to you, then government and irs and all this becomes less "dark evil empire" and more "greedy criminal jackasses in suits" and you can deal more effectively with them as the criminals they are.

Stop fearing all this. Bitcoin is utterly useless to you if the only thing you do is continue begging permission from governments. Please let us use  bitcoin, please tell me again how much to send you, please take as much as you deem fit because of evil drug users...

If you're still operating under a paradigm of asking permission, you clearly don't understand its potential power.

[allgoodthings1]

It's funny how the government won't back you up if you lose money in bitcoins, but they'll readily take a cut if you make money.

I guess I don't understand what you mean by "the government won't back you up". Since bitcoin has been deemed property, any loss or theft of actual bitcoins falls under the rules for *casualty losses* and can be tax deductible. http://www.irs.gov/taxtopics/tc515.html  And declared investment losses -- that is, selling or using bitcoins at a vale less than what those coins cost you -- reduce your taxable income, just like gains add to it. The government is not going to pay you back for any investment losses you have; but they do allow you use them to offset your gains and other income. That's only fair, and that's how the law stands.

[franky1]

Example: Let's say in 2014 you have taxable income of $100k and thus you were in a 25% marginal tax bracket; and you itemize deductions on Schedule A. You have $3000 worth bitcoin (present value) to sell/spend or donate; for those coins, you paid $1000 more than a year before.

If you sell or spend those bitcoin, you will pay $300-560 in Federal taxes ($2000 gain X 15-28%), depending on what tax rate is applied. And you might also pay state income taxes; at say 5%, that's another $100.

If you donate the $3000 worth of bitcoin to a charity, you pay no Federal or state tax, and you pick up a tax benefit of $750 in the Sch A deduction of $3000; that is, $3000 X 25%.

ha ha ha

what a piss poor example to use..

translation:
2013 you paid $1000 for a bunch of coins.
now those coins are worth $3000

1) throw the $3000 of bitcoins away and yes you pay no tax, because you have made no gains(not cashed out a dime). but you will get to declare a $1000 loss which does not even offset all of your regular income. infact you'd be better off not buying bitcoins at all and keeping the $1k last year as $1k in a bank account
2) give all the bitcoins to charity... and yes you guessed it you pay no tax, as you are not cashing anything out. but again you can offset the loss. which again does not cover the standard income tax you pay for your FIAT income of other employment

now your thinking WTF is the OP proposing. why would anyone throw or donate all their bitcoins.

seriously people.. read the IRS notes properly and then seek out professional advice. never use comments on a forum as legit guidance. just use it as a stepping stone to start you on the path towards proper advice.

[tl121]

If you are interested in giving bitcoins to charity, I suggest donating to Amurtel.  This is a low overhead charity that spends its money helping people in need, unlike some high profile NGO's which spend money flying their executives around in helicopters and putting them up in $400 per night hotels.

http://www.amurtel.org

If you have bitcoins that have appreciated and do not plan to take advantage of the tax laws, keep in mind that the authority of the IRS comes from the barrel of a gun.  Please remember that the difference between tax avoidance and tax evasion is "about seven years". 

[inBitweTrust]

One wonderful advantage of bitcoin is that it makes donating to charity as simple as throwing away my private keys and thus donating a small amount of value to all my friends in the fellow Bitcoin ecosystem.

Lose your private keys = no taxes.

[allgoodthings1]

read the IRS notes properly and then seek out professional advice. never use comments on a forum as legit guidance. just use it as a stepping stone to start you on the path towards proper advice.

True that. It is not without considerable credentials that I dare write about tax issues in this forum. Even so, readers should always consult these matters with their more trusted sources for sound advice.

[franky1]

read the IRS notes properly and then seek out professional advice. never use comments on a forum as legit guidance. just use it as a stepping stone to start you on the path towards proper advice.

True that. It is not without considerable credentials that I dare write about tax issues in this forum. Even so, readers should always consult these matters with their more trusted sources for sound advice.

yes everyone should get proper advise from proper tax experts. as for your example. i have not just found that one example as stupidly flawed. but your whole explanation as a flawed misunderstanding of bitcoin taxation. yes your entire explanation is flawed. so people should stick to what the IRS link shows and take those links to a tax expert.

[TheLittleDuke]

This is precisely why we created doabitofgood.com -- we wanted to create a system that would allow us to not only take credit for our crypto donations but also get a receipt for them!

We get a "two-fer" by expanding the crypto economies by bringing more miners into the pools by combining a screen-saver with a coin generating donation engine.  It makes Bitcoin donations something even our moms can do -- plus the REAL pro-social benefit is providing a communication channel to non-profits that supports their core missions.

For example an animal-shelter can upload pictures and bio's of adoptable pets to our system and their donor/subscribers can click-to-support them -- when their screen saver fires off they get pictures of available pets that they can click on and hopefully help find homes for.

Karmically that just feels good.

[Ron~Popeil]

Just don't convert to fiat and you are in the clear either way. Long term that is probably the best return on investment as well if BTC goes "to the moon" as we all predict.

i think you are still liable for paying taxes once you use the bitcoins though. bitcoin is treated as an asset by the IRS, not a currency.

Yes I forgot that part of the equation and I intend to go on forgetting it. 

[Ron~Popeil]

ORRRR

we can push for mass adoption and force the IRS to explain why it figures it has the right to money it did not provide, earn, or distribute.

And "just because we fucking said so" isn't the correct answer.

If you understand the power leverage bitcoin returns to you, then government and irs and all this becomes less "dark evil empire" and more "greedy criminal jackasses in suits" and you can deal more effectively with them as the criminals they are.

Stop fearing all this. Bitcoin is utterly useless to you if the only thing you do is continue begging permission from governments. Please let us use  bitcoin, please tell me again how much to send you, please take as much as you deem fit because of evil drug users...

If you're still operating under a paradigm of asking permission, you clearly don't understand its potential power.

Quoted for awesomeness. I like to think that we will eventually stop thinking and acting like serfs but old habits do die hard.