Personal Finance

Watch for these pitfalls before donating crypto to charity

Published

1 month ago

December 4, 2024

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If you’re planning a gift to charity this holiday season, you could score a tax break by donating cryptocurrency. But there are some key things to know before making the transfer, experts say.

In 2024, there’s been a significant jump in crypto gifts to charity, according to Fidelity Charitable, which has accepted $688 million in crypto donations — mostly in bitcoin — through Nov. 19. By comparison, the public charity received $49 million in digital currency in all of 2023.

Donating crypto to charity is similar to giving other types of property. But “there are some pitfalls,” said certified financial planner Juan Ros, a partner at Forum Financial Management in Thousand Oaks, California.

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Donate ‘the most highly appreciated asset’

Since 2018, the higher standard deduction has made it harder to claim itemized tax breaks for charitable gifts, medical expenses, state and local taxes, among others.

But if you itemize and can claim the charitable deduction, it’s generally better to donate profitable investments, such as cryptocurrency, rather than cash.

By donating crypto to charity, you can bypass capital gains taxes and claim a deduction based on its fair market value, assuming you’ve owned it for more than one year. The tax break has a cap of 30% of your adjusted gross income for public charities.

It’s an attractive strategy for crypto investors because bitcoin and other coins could be “the most highly appreciated asset in their portfolio,” said Kyle Casserino, vice president and charitable planning consultant for Fidelity Charitable.

The price of bitcoin was around $96,000 on Dec. 4, up by nearly 120% year-to-date, according to Coin Metrics.

However, donating crypto can be more complicated than assets like stock, experts say.

Some charities don’t accept crypto

“Not every charity is willing or able to accept gifts of crypto,” so you’ll need to contact the organization first, Ros said.

As of January, 56% of the biggest U.S. charities accepted cryptocurrency donations, according to The Giving Block, a platform for digital currency gifts and fundraising. That’s up from 49% the previous year.

However, most large donor-advised funds are “well-equipped” to accept digital currency, Ros said.

Donor-advised funds are investment accounts that work like a charitable checkbook. The donor receives an upfront deduction and can transfer funds to eligible nonprofit organizations later.

Typically, the donor-advised fund sells the crypto and reinvests the proceeds. But some allow investors to continue holding digital assets in the fund.

You may need a ‘qualified appraisal’

When you give a profitable investment owned for more than one year, your deduction is based on the fair market value of the asset.

That’s easy for publicly traded stock, but the IRS requires added documentation for digital assets worth more than $5,000, according to Andrew Gordon, a tax attorney, certified public accountant and president of Gordon Law Group.

“You’ve got to be able to support that deduction through the qualified appraisal,” which has specific IRS requirements, he said.

For example, you must file Form 8283 with your tax return and keep a copy of the appraisal. But if the donated assets exceed $500,000, you must include the appraisal with your return, according to the IRS.

You need to follow the IRS appraisal criteria “to the letter,” Ros explained. Otherwise, you could put your charitable deduction at risk in the event of an audit.

Personal Finance

Why your paycheck is slightly bigger

Published

28 minutes ago

January 7, 2025

Business Finance News

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Why your take-home pay could be higher

If you’re starting 2025 with similar wages to 2024, your take-home pay — or compensation after taxes and benefit deductions — could be a little higher, depending on your withholdings, according to Long.

“When all the tax brackets go up, but your salary stays the same, relatively, that puts you on a lower rung of the ladder,” he said.

The federal income tax brackets show how much you owe on each part of your “taxable income,” which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

“Even if you make a little more than last year, you could actually pay less in tax in 2025 compared to 2024,” because the standard deduction also increased, Long said.

For 2025, the standard deduction increases to $30,000 for married couples filing jointly, up from $29,200 in 2024. The tax break is also larger for single filers, who can claim $15,000 in 2025, a bump from $14,600.

‘It ends up nearly balancing out’

Despite tax bracket changes, many Americans won’t feel the pay increase amid elevated prices for certain expenses, said Sheneya Wilson, a CPA and founder of Fola Financial in New York.

“It ends up nearly balancing out,” she said.

While inflation is no longer accelerating, there was an uptick in the cost of groceries, gasoline and new cars in November, according to the Bureau of Labor Statistics.

Whether take-home pay is higher or lower than expected, it’s important to monitor your state and federal income tax withholdings throughout the year, especially during major income or life changes, Wilson said.

Typically, if you withhold too much from your paycheck, you can expect a refund, whereas not withholding enough often results in taxes owed.

Personal Finance

Student loan payments could lead to a tax break

Published

2 hours ago

January 7, 2025

Business Finance News

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There’s one upside to your student loan payments: They might reduce your 2024 tax bill.

The student loan interest deduction allows qualifying borrowers to deduct up to $2,500 a year in interest paid on eligible private or federal education debt. Before the Covid pandemic, nearly 13 million taxpayers took advantage of the deduction, according to higher education expert Mark Kantrowitz.

Most borrowers couldn’t claim the deduction on federal student loans during the pandemic-era pause on student loan bills, which spanned from March 2020 to October 2023. With interest rates on those debts temporarily set to zero, there was no interest accruing for borrowers to claim.

But interest on federal student loans began accruing again in September of 2023, and the first post-pause payments were due in October of that year.

By now, borrowers could again have interest to claim for the full tax year’s worth of payments, experts said.

“All borrowers should explore whether they qualify for the deduction as it can reduce their tax liability,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that helps borrowers navigate the repayment of their debt.

Student loan interest deduction worth up to $550

The student loan interest deduction is “above the line,” meaning you don’t need to itemize your taxes to claim it.

Your lender or student loan servicer reports your interest payments for the tax year to the IRS on a tax form called a 1098-E, and should provide you with a copy, too.

If you don’t receive the form, you should be able to get it from your servicer.

Depending on your tax bracket and how much interest you paid, the student loan interest deduction could be worth up to $550 a year, Kantrowitz said.

There are income limits, however. For 2024, the deduction starts to phase out for individuals with a modified adjusted gross income of $80,000, and those with a MAGI of $95,000 or more are not eligible at all. For married couples filing jointly, the phaseout begins at $165,000, and those with a MAGI of $195,000 or more are ineligible.

Personal Finance

Op-ed: Here’s why estate planning is a gift for your family

Published

6 hours ago

January 7, 2025

Business Finance News

Estate planning isn’t about focusing on your demise, one advisor says; it’s about taking control and making decisions that ensure your loved ones are cared for.