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How to Open a Donor-Advised Fund with Crypto

If you are a cryptocurrency holder interested in charitable giving, setting up a donor-advised fund (DAF) can be an excellent way to maximize your impact and tax benefits.
Steven Aguiar
August 3, 2023

If you are a cryptocurrency holder interested in charitable giving, setting up a donor-advised fund (DAF) can be an excellent way to maximize your impact and enjoy tax benefits. Since 2017, the number of donor-advised funds in the United States has grown 29% year-over-year. In this post, we’ll guide you through the process of opening a DAF and contributing your cryptocurrency holdings.

Before we get started on the process, let's review the basics of a donor-advised fund. The recent popularity of DAFs is not a surprise given their advantages over a direct donation:

  1. Immediate Tax Benefit: When you contribute to a DAF, you're eligible for a tax deduction based on the USD value of your tokens in the same tax year, irrespective of when the funds are later distributed to charities.
  2. Potential for Investment Appreciation: Your crypto contributions can remain invested, allowing for growth over time, which could mean more funds available for granting in the future.
  3. Flexibility: You can recommend grants to your chosen charities whenever you wish, allowing for strategic and thoughtful philanthropy on your terms.
  4. Simplified Record Keeping: By contributing various types of assets to a DAF, you streamline the donation process. The sponsoring organization, like Givepact, manages the assets, handles all record-keeping, and provides you with a single, consolidated tax receipt.
  5. Legacy Planning: You can appoint successor advisors, such as your children, allowing the tradition of giving to continue across generations.

Now that we've outline the benefits of setting up a donor-advised fund, here's how to go about setting one up. (Spoiler alert: You can set up a crypto DAF with Givepact right now.)

Step 1: Choose a Sponsoring Organization

Your first step in opening a DAF is to select a sponsoring organization, which is typically a public charity. This organization will administer the DAF on your behalf. Many different organizations offer DAFs, including community foundations, financial institutions, and independent charities. Be sure to choose one that accepts cryptocurrency donations.

Step 2: Establish Your Fund

Once you've chosen a sponsoring organization, you’ll need to establish your fund. This typically involves completing an agreement where you provide information about the fund, such as its name and advisors. You may also need to decide on succession plans for the fund, such as designating successor advisors or choosing charities to receive the remaining funds upon your death.

Step 3: Make Your Initial Contribution

After your fund is established, you can make your initial contribution. This is where your cryptocurrency comes into play. You can transfer your cryptocurrency directly to the DAF. The sponsoring organization can either hold the cryptocurrency as-is, or sell it to hold cash in your account. Note that the IRS treats cryptocurrency as property for tax purposes, so you can claim a deduction for the fair market value of the cryptocurrency at the time of donation. (Please consult a tax professional for advice.)

Step 4: Receive Your Tax Deduction

Upon making your initial contribution, you should receive a receipt from the sponsoring organization. This receipt serves as documentation for your tax deduction. Remember, you can deduct the full fair market value of the donated cryptocurrency, subject to IRS limits.

Step 5: Start Recommending Grants

With your DAF funded, you can now start recommending grants to qualified charities. You can generally make these recommendations at any time and at your own pace. The sponsoring organization will perform due diligence to ensure the charities are eligible to receive grants and then distribute the funds accordingly.

Step 6: Monitor and Manage Your DAF

Most sponsoring organizations provide online access to your DAF, allowing you to monitor your fund's balance, make additional contributions, and recommend grants. Some DAFs also allow you to invest your contributions, potentially increasing the amount available for charitable grants over time.

Opening a DAF and contributing your cryptocurrency holdings is a practical and impactful way to manage your charitable giving. Not only does it offer tax benefits, but it also provides the flexibility to support the causes you care about most. Remember, it's always important to consult with a tax or financial advisor to understand all implications.

If you're ready to open a donor-advised fund now, just complete the application on our site to get started. Happy giving!