August 10, 2023 •HoganTaylor
As cryptocurrency continues to gain popularity and widespread use, nonprofits must adapt to this new digital landscape by considering the acceptance of crypto donations. While it may have been perceived as risky and unstable in the past, the ubiquity of cryptocurrencies now makes it unwise to refuse such contributions. However, accepting crypto does require careful consideration and preparation to ensure the security and successful utilization of these donations. Here are some essential factors to keep in mind when embracing cryptocurrency donations for your nonprofit:
Understanding Cryptocurrency Basics:
Cryptocurrency is a decentralized form of digital currency recorded on a blockchain ledger, free from centralized control by banks or governments. It derives its value, in part, from its limited supply, such as the 21 million "coins" in the case of Bitcoin. However, one significant challenge of cryptocurrencies is their price volatility, with values fluctuating by over 10% in a single day. Therefore, nonprofits must be aware of these price swings and develop strategies to mitigate potential risks.
Embracing the Benefits:
Despite the volatility, accepting cryptocurrency donations offers various advantages. Donors may choose to contribute crypto holdings to avoid capital gains tax on their appreciation. Additionally, accepting crypto through blockchain technology can eliminate transaction fees associated with traditional electronic donation platforms, ensuring that more funds are available to support your nonprofit's mission. Moreover, by enabling global donors to give without the hassle of currency exchange, your organization may attract a broader and more diverse supporter base.
Mitigating Risks:
To contain the risks associated with crypto's price fluctuations, nonprofits can opt for third-party facilitators, such as The Giving Block, Engiven, or Bitpay. These platforms allow you to convert crypto donations into dollars promptly, safeguarding your organization from potential losses due to market fluctuations. Though these facilitators charge a small fee akin to credit card transaction fees, the added security they provide is invaluable.
Establishing Secure Digital Wallets:
If your nonprofit chooses to accept cryptocurrency directly, it's crucial to create secure digital wallets through reputable banks or mobile phone apps. These wallets store the public and private keys necessary to send and receive crypto coins securely. Robust internal controls and security measures should be implemented to safeguard your organization's keys and wallets effectively.
IRS Reporting Requirements:
For accurate reporting and compliance, nonprofits must treat crypto donations as noncash contributions on Form 990. If your nonprofit receives over $25,000 in noncash contributions, including crypto, you must file Schedule M. Additionally, if you convert crypto to cash within three years of receipt, filing Form 8282, Donee Information Return, is mandatory, and you must provide the donor with a copy. For crypto donations exceeding $5,000 in value, your organization must sign the donor's Form 8283, Noncash Charitable Contributions.
Establishing Clear Policies:
To ensure a smooth process for accepting cryptocurrency donations, it's essential to establish clear and comprehensive gift acceptance policies. These policies should outline the procedures for handling crypto donations, security measures, reporting protocols, and how you will utilize these funds to support your mission.
In conclusion, accepting cryptocurrency donations can be a powerful strategy for nonprofits to attract new donors and access additional funding. However, it requires careful planning, risk management, and compliance with IRS regulations. By embracing the benefits of cryptocurrencies while safeguarding against risks, nonprofits can harness this digital currency's potential to make a positive impact on their communities and causes.
For assistance and guidance in implementing crypto donation strategies for your nonprofit, feel free to contact us. Together, we can navigate this exciting new frontier of philanthropy and drive positive change through the power of cryptocurrency donations.
How HoganTaylor Can Help
The HoganTaylor Nonprofit team of business advisors and CPAs is comprised of former CFOs, controllers, and industry experts with extensive experience providing the guidance organizations need to lean forward again in their leadership. If you have any questions about this content, or if you would like more information about HoganTaylor’s Nonprofit practice, please contact Jack Murray, CPA, Nonprofit Practice Lead.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
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