How to Donate NFTs
Your NFT could change the world. Literally. With the rise of NFT philanthropy, artists and collectors are having a big impact on the future of nonprofits–funding projects from universal internet access to sustainability and everything in between.
But how does it work, and how can you get started?
NFT philanthropy can essentially take three different forms; donating the proceeds of your drop, donating a piece itself, or building a dedicated collection to benefit a cause close to your heart. This article will look into all three and includes a handy section on taxes at the end. Let’s get gifting.
Donating NFT Proceeds
Charity doesn’t have to be at the expense of profit. Artists, collectives, and nonprofits can share in the proceeds. With the proper smart contract, you can ensure that future royalties achieve the same. In 2022, dedicating part of your earnings to one or a group of nonprofits is the most popular way to go, with projects like Degenerate Trash Pandas already donating more than $240,000 (in SOL) to a group of charities voted on by their community.
In most situations, creators decide on a charity (or group of charities) before the drop and program a designated wallet into the smart contract and royalties (we can help!). Or sometimes, creators wait until after the project gets going to allow the community to decide. Regardless of the order, including one or more nonprofits is simple; just ensure that your contract splits revenue and royalties effectively.
An important note on taxes: it’s often simplest to have the donation happen at the smart contract level, rather than receiving all the funds and then donating them. We have more info on that here.
Donating an NFT to Charity
The IRS considers NFTs as property, no different from tangible things–like your prized Vitalik Buterin t-shirt or trading cards. And so, just as savvy investors donate stock directly to nonprofits, you can send an NFT to a nonprofit wallet and enjoy the tax benefits.
The nonprofit will then typically auction it off, but they can, of course, hold. In the wake of the Uvalde shootings, we ran a short auction raising funds for Everytown for Gun Safety.
Donating an NFT is relatively simple: you’re transferring from your wallet to theirs. It gets tricky when the nonprofit doesn’t have a wallet or in-house expertise to run an auction, as in most instances, but we can generally take care of that for you and them! Always feel free to reach out if you get stuck.
The IRS hasn’t released an NFT-specific ruling just yet, so we’re relying on examples from stock and crypto giving for now. As with those gift types, you may be able to deduct the full fair market value from your income taxes (and avoid capital gains), if you’ve held the NFT for more than 12 months. We’ve written about that here: Tax Deductions for NFT Donations.
Dedicate an NFT Collection to Charity
Nonprofits on the edge of technology are working with artists to build and launch entire NFT collections to benefit their mission. You can buy a piece of rubble to support Ukraine, a croc to help Steve Irwin’s zoo in Australia, or a Patchwork Kingdom for Giga–a UNICEF project to provide internet access to every school in the world.
It’s a big effort and requires a strong partnership and collaboration between parties, but for the right mission, in the right moment, these collections can be powerful tools for change.
UNICEF’s project raised 235+ ETH in total. The Australia Zoo sold out its collection of 2,000 crocs in less than a day, with more drops to come. For collections like these, start by reaching out to the nonprofit or taking advantage of a donation platform like Crypto for Charity.
Disclaimer
Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Crypto for Charity does not provide legal or tax advice. Availability of certain federal income tax deductions may depend on whether an individual itemizes deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of the information provided. Charitable contributions of capital gain property held for more than one year are usually deductible at fair market value. Deductions for capital gain property held for one year or less are usually limited to cost basis. Consult an attorney or tax advisor regarding specific legal or tax situations.
