We are always working with our clients to explore alternatives that work within the tax law to make sure they pay the least amount of tax allowable by law. If you asked me a few years ago, I never would have thought that Virtual Currency would become one of those alternatives.
The IRS has recently provided guidance on the treatment of donated virtual currency. This gives you the option to donate appreciated virtual currency directly to a recognized charity. Doing so allows you to support your favorite charity while also enjoying some tax benefits.
First, since you are not selling the Virtual currency before donating the currency, you do not need to include the gain in your taxable income.
Next, as long as you itemize, you get to deduct the value of your charitable donation. For virtual currency that you own less than 1 year, the donation value you can claim on your taxes is equal to the lesser of either your basis (original cost-plus adjustments) or the fair market value of the virtual currency on date of your donation.
For virtual currency owned for more than 1 year, your deduction value is equal to the fair market value on the date of donation.
Lastly, make sure that you obtain a written acknowledgement from the charity for their receipt of the donation. If the value of your donation is over $5,000, you must have the charity sign Form 8283 to acknowledge receipt of the donated property.
Honorine M. Campisi, CPA