Tax on Crypto Gifts, Tips, and Donations

crypto gift tax

The population of successful investors of Cryptocurrency worldwide is continuously proliferating every year. Besides that, many of them also show generosity by sharing what they’ve earned from these investments with others as a gift, tip, or donation. Even though they’re fully aware of the crypto gift tax and the crypto donation tax, some investors still want to share their success with those they want to give help. 

Moreover, most of them usually send their Cryptocurrencies to others for free through an airdrop. It’s when a virtual coin or token is directly sent to a particular wallet of the user. In addition, besides helping others with free crypto, many people also use these airdrops as part of their marketing campaign to boost awareness to people about their new crypto projects. 

Hence, if you’re new to this Cryptocurrency world or you’re here for quite some time now, but you don’t have enough knowledge about crypto gifts, tips, and donations, this article is for you. You’ll also get to know the tax implications of these crypto events or transactions and see how they can affect your tax obligations. 

Is Gifted Crypto Taxable? 

The Internal Revenue Service or IRS considers Cryptocurrency as property that will result in owing tax obligations from making any crypto transactions, like purchasing or selling these virtual currencies. However, sending your crypto capital assets to another person as a gift has different tax implications. 

Moreover, the IRS made it clear to everyone about the difference between a Cryptocurrency given as a gift and a donation. If you send your virtual currency asset to a qualified and legit charitable organization, it’s the charitable contributions or donations. On the other hand, when you send it to your friends, family members, or a particular crowdsource campaign helping a person with medical expenses and bills, that’s when you’re gifting Cryptocurrency. 

However, unlike charitable donations, you can send your crypto asset as a gift to anyone of your choosing, and there’s no particular requirement when you give it to any qualified and legitimate charitable campaigns or organizations. Moreover, those who gave and received virtual currency as a bona fide gift or a donation won’t have to pay any taxes. Besides that, due to your kindness and generosity shown in helping people in need, you’ll receive some tax savings by reducing your total tax obligations in the current tax year.

Hence, to answer the question: Is crypto gift taxable? The answer is no. That’s why those who gave and received virtual currency as a bona fide gift or a donation won’t have to pay any virtual currency taxes. You’ll also receive some tax savings by reducing your total taxable capital gain as your reward. For example, let’s say you purchased a particular virtual currency asset on the first of January 2020, amounting to $5,000. Then, after one year and ten months, you decided to send it to your brother, Jeeno, as a gift when its value at the time had increased to $10,000. 

However, since it’s a virtual currency gift, you won’t be paying any crypto tax for the long term capital gains you’ve earned, amounting to $5,000. In addition, Jeeno will also have some benefits when you provide him with your asset acquisition details. With that, if Jeeno knows the date you acquired your asset, the IRS will let him adopt a much longer holding period. It means that Jeeno will enjoy the tax advantage from the long-term capital gains rates. 

On top of that, if Jeeno also knows the exact amount you paid for the asset you gave, he may also adopt that amount as his cost basis. But, it still depends on if Jeeno has capital loss or gain after converting the gifted asset to another virtual currency. It’s because, according to the IRS, Jeeno’s basis is equal to the fair market value of the gifted asset on the date he received it or less than the amount of your basis, as the giver, to determine if he has incurred a capital loss after the asset conversion. 

On the other hand, to see if Jeeno has a capital gain, his basis will be the same as yours as the giver plus the amount of the Cryptocurrency gift taxes you paid for the crypto capital assets you gave if it meets the gift tax threshold. However, if Jeeno doesn’t have any valid documents about your cost basis, his basis will become zero, and the tip he received will be his taxable income. 

How Do I Report Gifted Cryptocurrency on My Taxes?

If you received a crypto asset as a gift, there’s no need to report it in any IRS income tax forms. However, if you earn a particular amount of short or long term capital gains when you decide to sell it in the future, that’s the time you have to include it in your tax return and pay your owed crypto income tax

However, if you’re the giver of the virtual currency as a gift to someone, you won’t have any crypto tax obligations. But, if its value at the time is more than $15,000, there’s a corresponding gift tax that you need to pay. Hence, you must report and include it in your return during tax season by filing Form 709. It’s the form you have to use every time you receive a crypto capital asset as a gift from someone. 

Tips

cryptocurrency gift tax

With the popularity of Cryptocurrency today, you can now give tips to someone online using your crypto assets. That’s why if you want to show your appreciation for an excellent and satisfying service, for example, that you get from others on the internet, you can send them any crypto amount most conveniently. Besides that, there are also some tipping platforms you can find online that many crypto investors access today, like Tipprbot, Chaintip, Getcash, and many others. 

Moreover, many investors sometimes get confused about the difference between sending a virtual currency to someone as a gift or a tip. But, according to the IRS, both of them fall under the gifting category. Hence, when you send a Cryptocurrency tip to someone using a particular tipping platform, like $1, $3, or $0.75, it also means you’re transferring whatever capital gains and losses you have on that asset to your recipient. 

In addition, the same rules apply as discussed above for gifted crypto assets when it comes to the tax implication of a virtual currency tipping. For example, I purchased the crypto for $10, and its value increased and became $30 after a year. Then, one day, I decided to give it to you as a tip, and you finally sold it in the market when its value increased to $50 after one year and a few months. 

This scenario shows that you’ve earned a taxable income from your long term capital gains of $40 in total. It’s because the moment I sent it to you as a tip, you also adopted or inherited the cost basis and holding period of that asset when I still had it. Hence, even though you received it for only $30 and earned long term capital gains of $20, you still owed crypto taxes for the total gains it earned from the time I bought it, and you sold it. Therefore, you have a total Cryptocurrency tax obligation of that asset I gave you, amounting to $40. 

However, if the recipient of the tips doesn’t know the exact date when the gifters acquired the assets and has no idea how much it was when they purchased it, the said recipients’ cost basis will be zero. Then, the Cryptocurrency tips they received will become their taxable income. 

Donations & Charitable Contributions

crypto donation tax

As mentioned earlier, donating your crypto assets to any legit and qualified charitable organizations won’t cause you any tax obligations. But, this particular event won’t identify any capital gains and losses for the donor’s crypto asset. However, besides not having any owed crypto taxes from the capital gains of the crypto you gave, donating it to a charity will also give you a particular charitable deduction that is equal to the fair market value of the capital assets on the date of the donation if its holding period is more than a year before sending it to the recipient. 

On the other hand, if the holding period of the crypto asset you donated is only less than a year, the amount of the adjustment in your taxes you can claim is equal to your cost basis. Besides that, you won’t also have any owed taxes from any capital gains you earned from the virtual currency you donated to a charity and other qualified organizations with the objectives of helping people in need. 

For example, let’s say you bought a Cryptocurrency asset for $500 in March of 2019. Then, after one year and ten months, you decided to donate it to a charity when its value at the time was $15,000. Hence, the total deduction in your Cryptocurrency taxes will be of the same amount, which is $15,000. On top of that, you don’t have any tax obligation for the capital gain of $14,500. So, as you can see, you’ll surely have a lot of savings when you donate your Cryptocurrency capital asset to a qualified charity. It’s also one of the reasons why many successful crypto investors choose to use crypto assets for donation instead of real money.  

Are Crypto Transfers to Controlled Companies Taxable?

If you transfer your property into any corporation to get a stock in return, you’ll owe appropriate taxes from this particular event or transaction. You’ll then know your capital gains and losses based on the difference between the value of the stock you received and the crypto asset’s tax basis you transferred. 

Moreover, the US tax code says that anyone can transfer a property to any corporation to acquire a new stock without any tax obligations. So, as long as you’ve met the requirements to make this transaction, this rule applies to you. Besides that, you may also experience some delays in receiving your gains from the exchange you did. But, the good thing about it is that the IRS will only tax your capital gains when you’ve successfully sold your stock in the market. 

However, if you are in control of the particular corporation after you exchanged your property for a stock, there’s no capital loss or capital gain triggered in this case. Also, if it says you are in control, it means the stock ownership with a percentage of eighty percent of the total shares of all classes in a particular corporation. The same thing goes for LLC or any partnership. Therefore, your contributions for the partnership interest can be free of tax according to the US tax code. 

FAQs

Can you gift Bitcoin tax-free? 

Do you have to pay tax on gifted Bitcoin? The answer to this question is no. Sending bitcoin to anyone as a gift is a non-taxable event, according to the IRS. However, for tax purposes, if the value of your gift is more than $15,000, that’s the time you owe corresponding gift taxes that you need to include in your tax return and pay during the tax season. 

Can you give crypto as a gift to your family?

You can send your crypto asset to any member of your family as a gift. But, if it’s more than $15,000 worth of crypto value, you’ll then owe appropriate gift taxes that you need to report when filing your tax return in the current tax year. However, you’ll be receiving some deductions in your crypto taxes depending on the holding period of the gift you gave. 

Besides that, your recipient doesn’t have to pay any virtual currency taxes after receiving the gift from you unless it gets sold and increased in value. On top of that, if your recipient knows the date you purchased that crypto gift and its amount or value at the time, he or she may be adopting your cost basis and holding period. 

If I give my Cryptocurrency as a gift, am I liable to tax?

According to the IRS, you won’t owe any tax obligations when you send your virtual currency to someone as a gift. However, unless it’s more than $15,000, there will be gift taxes you need to report when processing your income taxes. Besides that, you can also claim a tax deduction, depending on the holding period of the asset you gave. 

However, if its holding period is less than a year, the amount of the tax deduction will be equal to the donor’s cost basis. On the other hand, if the holding period exceeds one year, it means that the total amount of deduction in your crypto taxes will be the same as the fair market value of the crypto asset on the date you gifted it. 

Conclusion

As mentioned earlier, the number of people investing in virtual currency continues to increase across the globe. It only means that many people start to fully understand the opportunity that a virtual currency can provide. Besides earning a profit from these virtual currencies, many crypto investors want to share what they have with other people, especially those in need. It’s through sending some of their crypto assets to someone they choose as a gift, tip, or donation. 

Hence, if you want to do the same as a crypto investor and a profit earner of these virtual currencies, you have to remember everything discussed above. You won’t only help people with your crypto, but you’ll also enjoy the tax advantages you’ll get during the tax season. 

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