Source: ilafp.com As we approach the end of a tremendous year for many are now looking to potentially cash in on some of their gains for a spot of holiday shopping, but are only now realising that the may be liable for unexpected taxes, as highlighted by veteran VC here: . crypto-assets Fred Wilson Bitcoin Gains — Advice for US taxpayers Most countries treat crypto-assets like and Ethereum as property or similar, making them liable for capital gains or even income tax. This applies when taking profits in local currency or even swapping one asset for another, such as Bitcoin for Ethereum or even buying tokens as part of the $4.3 billion boom this year to diversify their portfolios. Bitcoin Lots of money, lots of taxes Authorities are likely to crackdown on unreported gains, made easier by all transactions being stored immutably on the blockchain, with this weeks ruling that Coinbase had to provide the IRS with a taste of what is to come. identifying information of 14,355 users Charitable crypto giving So charity, much reward Those who have made large gains on crypto-assets have been rewarded for being early adopters to degrees otherwise unimaginable. Donating to charities is a good use of proceeds to pass on this fortune to those less fortunate or help communities, with some such as or accepting direct donations, as does the , which takes in Bitcoin and then allows for directed giving to any other 501(c)3 charity in the USA. Save The Children The Water Project Fidelity Charitable Trust Depending on the tax location it is sometimes more efficient to give crypto-assets directly, at other times it is more efficient to convert them to cash and then give cash to reduce potential tax liabilities. Tokens and Foundations Pick the right foundation Charitable Foundations, particularly located in Switzerland and Singapore, are popular locations for token generation and distribution events for protocols for two reasons. The first of these is tax and (although the latter is often overlooked), with revenue from direct sales not typically taxable if used for the Foundations mission and less complexity over deferred liabilities if using utility tokens. In many cases the terms are that tokens are allocated in as opposed to directly sold. accounting recognition of charitable donations Another reason is governance-related, with the Foundation administering the protocol or platform, although when there is also a private company not owned by the Foundation in the mix. this can cause issues There have been few UK and US-based charities distributing tokens, meaning UK and US tax payers could not take advantage of any potential tax relief, but this could change rapidly as they take advantage of the new crypto-asset infrastructure to further their missions. A new model for charities Give a little, get a lot At the , a UK charity also able to accept US donations, we are building a dynamic global knowledge base using cutting-edge AI & data science to . Ananas Foundation bridge ideological divides We are one of the first UK charities to issue a token, in our case one that is a unique, scarce, digital asset used for membership and sponsorship on the Ananas platform. These tokens, , don’t quite fit into the current utility or security classifications that have been endlessly debated, but are similar to in their token economics (as ) and dynamics, conferring status, membership and ownership while being exchangeable ERC-20 Ethereum tokens that plug into the brand new infrastructure that has emerged this year. Anacoins Crypto Kitties veblen goods Parts of this model can be adapted by most US and UK charities to offer individuals in both countries tax-relief during fund raisers where tokens are allocated for contributions, while also aligning large communities to build great projects for the good of everyone, as discussed by in his essay on . Trent McConaghy Starships and Tokens A big relief To put this in context, with the proviso to always check with your accountant, $10,000 of Bitcoin profits in the UK would generate a tax bill of 20%, meaning that contributing $10,000 of Bitcoin gains to a token sale with a Swiss Foundation would “cost” $10,000 + $2,000 = $12,000. Participating in an equivalent UK charity fund raiser directly with Bitcoin gains of $10,000 would potentially remove the capital gains charge and allow for a direct deduction against income tax of up to 45% in the UK, meaning a $10,000 contribution at a cost of as little as $5,500, a saving of $6,500. If converting back to pounds first, the UK could make the effective cost of a $10,000 contribution as little as $6,400 on Bitcoin or similar gains. gift aid system In the USA the tax code is more complex, but on assets held for less than a year, gains are typically chargeable to income tax of nearly 40%. Converting these to dollars and then giving to a 501(c)3 offsets this liability, meaning a contribution of $10,000 only “costs” $10,000, versus nearly $14,000 of cost if giving to a Swiss Foundation. It is not tax efficient in the US to directly give short-term capital gains on crypto assets. If held for more than a year, it becomes far more efficient, with only capital gains of 20% liable and the ability to write off the whole gain at market value if donating directly, for example to one of the charities or directed funds noted above (subject to filing over $500 and getting an appraisal ). Form 8283 over $5,000 This means a $10,000 contribution may only cost $6,000, versus $12,000 to a Swiss Foundation in this case. Converting to cash and donating that isn’t quite as efficient as directly giving crypto-assets. Conclusion — No time like tax time It always pays to take professional advice and be cautious in dealing in new sectors, but the innovation in the crypto asset space has tremendous potential for creating new models for funding and driving projects for community good. Highly-regulated UK and US charities have not as yet taken advantage of this, but as the tax liabilities of crypto hodlers continue to rise, we can expect new models to emerge to offer alternatives to deploy these gains in a tax efficient way, particularly for UK and US charities where it is relatively straightforward to take contributions from both sets of citizens once a charity is established in either country through donor-advised funds. The is one of the first examples of this for holders who contact us directly versus participate in the public fundraiser and we hope to create a model other charities can leverage, potentially as a as outlined by . Ananas Foundation Community Token OutlierVentures.io As events this year have shown, companies should be cautious about using these structures to sidestep regulation and any Foundation such as this should have a clearly defined and the right intentions to create common resources for the good of communities around the world. engaging in a new area ethics policy It is a tremendously exciting time and hopefully the crytpo community can drive tremendous good.
