Tax Tax Tax
It unites us all.
Your tax primer for your 2021 return and beyond.
The basics: cash donations
WaterAid is officially recognized by the Internal Revenue Service (the IRS) as having 501(c)(3) status. This means all cash donations (as opposed to goods, such as donated cars or food) are eligible for deduction on your tax return.
The advantage is that the tax deductions can be deducted from your income, meaning you are paying tax on a lower amount.
Example: If your income in 2021 is $75,000 and your total donations come to $5,000, you will only pay income tax on $70,000.
What is a cash donation?
In terms of the IRS, a cash donation is any donation made via credit or debit card, ACH bank transfer or a digital wallet, such as Apple Pay, Amazon Pay or Google Pay.
The CARES act might save you some tax dollars
The 2020 CARES act had a number of provisions designed to support US tax-payers and potentially reduce your overall tax bill. The updates are still in effect, so for your 2021 tax return any deduction under $300 can be claimed as a deduction on your return. (In years prior to 2020 donations had to be itemized to qualify).
What's the most tax-efficient way to support clean water projects?
Cryptocurrency and online stock donations
WaterAid offers two means of donations that are even more tax-efficient than a traditional credit card or bank transfer transaction. They can both be completed securely online in less than 60 seconds.
Donate in Cryptocurrency
In the US, the IRS has classified cryptocurrency as a property asset for your tax purposes. That means taxes on your crypto are similar to taxes on stocks or other investments. Essentially you end up paying short or long-term capital gains taxes on any gains on your cryptocurrency investments. The rate you pay and whether or not it is considered a short or long term gain will depend on how long you’ve held the crypto asset:
- If you held the crypto asset for less than one year, it’s considered short-term capital gains.
- If you’ve held the asset for more than a year, it’s considered long term.
The current long-term federal rate caps out at 20% but when you add state taxes, you can end up owing more than 30% in higher tax jurisdictions like New York or California. Short-term rates are even higher and align with your tax bracket, so if you’re a high earner you can end up paying a massive 40% after state taxes. Not ideal.
Now for the good news - water a great opportunity
Donating appreciated cryptocurrency is a great way to partially offset or completely eliminate your crypto taxes while supporting clean water projects. It's a win-win.
There’s a reason the world’s rich and famous have their brokers on speed-dial to donate stocks and other forms of property instead of writing a check. It’s simply more tax-efficient.
Donating crypto means you could end up paying no capital gains taxes on the appreciated crypto, get a fair market value deduction for what you donated and WaterAid receives an even larger donation than if you had donated in cash.
In many cases, this can mean a 30% larger deduction for you and 30% more money supporting clean water projects than if you sold your assets and donated the after tax proceeds.
Donate cryptocurrency now
Care to know how many people the crypto community have equipped with clean water so far?
Read the 2021 Crypto Impact Report
Prefer to stay anonymous?
No problem, we use The Giving Block to handle our cryptocurrency transactions and this gives donors the option to remain anonymous while still receiving a donation receipt. You can still claim your deduction on your taxes and retain your anonymity.
Donate Stocks Online Instantly (no need to call your broker!)
Stock donations are another good option to support clean water projects and reduce your tax bill at the same time. Stock donations are highly tax-efficient if you've held the stock for more than a year and claim itemized deductions.
Imagine that last year you bought some Apple shares for $10,000 and that today they are worth $20,000. If you donate the entire amount to a non-profit you can claim a charitable donation deduction for the current market value of the shares — the full $20,000. In addition, when you hold on to a share for more than 12 months, you would ordinarily have to pay capital gains tax on its appreciation amount. But if you donate the stocks instead of selling them, you won't have to pay any tax at all.
We use Overflow to allow seamless and easy stock donations, from your smart phone or computer.
Did you know?: Donating in stock or crypto is the only way to avoid capital gains tax.
Ever wondered how you can avoid paying taxes when you decide to sell your stock options?
Imagine a scenario in which you sell your long-term appreciated securities first and donate the proceeds to WaterAid. After selling the stock, you will have to pay a capital gains tax, which can be anywhere from 15% to 20% depending on your tax bracket. As a result, you will end up paying a massive tax and making a donation that is 20% less than you would have made had you donated your investments directly.
The conclusion? Giving stock directly to WaterAid can help to reduce any capital gains tax and will mean more funding for our clean water projects around the world.
Try it for yourself using our tax savings calculator below: