Key Tax Benefits for Crypto Donor-Advised Funds (DAFs)
For proactive donors, the cryptocurrency space is oftentimes confusing — especially when it comes to taxes. For those seeking to maximize their impact while leaving a lasting legacy, however, understanding the tax benefits of crypto donor-advised funds (DAFs) is key.
These philanthropic vehicles operate in a similar manner as your own foundation, empowering you to mitigate your tax burden while supporting your favorite nonprofits. By using a trusted foundation, you can open a DAF and simplify the road ahead with confidence. Here’s what donors need to know.
How Do Crypto DAFs Work?
On a fundamental level, crypto DAFs allow donors to contribute digital assets such as cryptocurrencies or NFTs to support 501(c)(3) nonprofits. From there, these assets can grow and support the nonprofits through grants distributed at any time.
With additional options to stake eligible cryptocurrencies or even contribute cash, DAFs offer a high level of flexibility to amplify your social impact.
Why Open a DAF?
When it comes to growing and granting your assets, DAFs offer a myriad of immediate and long-term tax benefits. In turn, donors can enjoy exceptional tax efficiency while enabling charitable organizations to thrive. These tax benefits include:
Avoiding Capital Gains Tax
By contributing appreciated assets to a DAF, you can bypass capital gains tax while enjoying an immediate tax deduction based on the current value of the assets. In turn, donors can avoid the tax burden of selling an asset then donating the post-tax proceeds. As a result, you can maximize the power of your contributions.
Ensuring Tax-Free Conversions
With a DAF, you can store assets in a dedicated crypto portfolio with tax-free growth. When it’s time to donate, these assets can be converted to cash without incurring additional taxes.
Streamlining Tax Planning
Without a centralized place for tax planning and record keeping, donations can quickly get out of hand. As a result, past contributions and future tax efficiencies can fall by the wayside. Instead, DAFs bring everything together in one place.
About Issuing Grants
Another key benefit of DAFs is the ability to give grants to nonprofits of your choosing on your own timeline. While traditional donations operate on a one-time, fixed basis where charitable organizations receive an immediate distribution, flexible grants ensure that your charitable efforts make a meaningful impact over the long-haul.
As a result, you can help sustain various causes or projects over time. Select foundations allow for legacy planning as well to help successors who share in your values continue to make a worthwhile impact.
Do DAFs Incur Fees?
While sponsoring organizations include administrative fees to support the upkeep of your DAF, these fees are a small fraction of the taxes associated with alternative approaches. These fees cover various aspects such as record keeping, due diligence, and other operational considerations.
Where to Get Started
If you’re interested in opening a donor-advised fund and elevating your charitable efforts, I highly recommend the Givepact Charitable Foundation. As a certified tax-exempt 501(c)(3) organization, they empower donors to unlock the full advantages of DAFs with ultra-competitive administrative fees, a portion of which supports their social impact decentralized autonomous organization (DAO).
For questions surrounding DAFs, crypto tax services, and beyond, I invite you to reach out today. From there, we can explore your charitable goals and discuss your options.