With Christmas coming in a matter of days, cryptocurrency seems like a tempting gift idea to those who have not gone gift-shopping. Here are some factors to consider if you’re thinking of gifting cryptocurrency to someone as a Christmas gift:
- Expertise or interest
First and foremost, does the recipient even have interest in crypto? Although cryptocurrency has grown in popularity this year, many people still have no interest in it or have only rudimentary knowledge of it. If you’re delivering bitcoin to someone who has never owned the digital currency, think about whether they’ll be intrigued, or if it’ll end up unclaimed, like so many gift cards do.
2. The purchasing procedure
You’ll need to work out how you’re going to deliver cryptocurrency as a gift if you’ve decided to do so. According to BlockFi’s data, while bitcoin has been a popular present this year, many people are unaware of how to really use it.
Gift cards that can be redeemed for crypto or giving bitcoin directly to someone via an exchange from one crypto wallet to another are two typical ways to offer crypto. If you already have a favourite crypto exchange, that might be the greatest place to start because it gives you first-hand experience that you can share with your recipient.
However, in order to execute the transaction, both the present sender and the recipient will need a crypto wallet or exchange account, which can be a little more tricky. If you’re gifting cryptocurrency to someone who doesn’t already have one, they’ll need to create one in order to accept it.
Third-parties are involved in crypto gift cards, which can add to the complexity for both the recipient and the sender. Whatever path you choose, be sure you know and communicate everything your receiver will need to succeed.
Cryptocurrency is a high-reward, high-risk investment. In other words, there’s a chance your cryptocurrency’s value will skyrocket in the next years. However, it’s just as conceivable that it may lose all of its value, leaving you with nothing but the experience. If you’re giving cryptocurrency as a present, be sure the receiver is aware of the hazards associated with cryptocurrency ownership and investment.
While volatility might be a disadvantage when it comes to gifting cryptocurrency, it can also be a benefit depending on how you view cryptocurrency. Bitcoin might go through the ceiling or through the floor if you get it. There are some who believe that Bitcoin is the future of Bitcoin and that Bitcoin will take over. And if that’s the case, Bitcoin’s value prospects are limitless.
4. Implications on taxes
In the US, it comes under the 2021 gift tax allowance if you give less than $15,000 worth of cryptocurrency. As a result, you won’t have to be concerned about any tax ramifications associated with the gift.
Despite the gift tax exemption, recipients of cryptocurrency may have to pay taxes on it in the future. It relies on the capital gains or losses of the cryptocurrency when the gift recipient sells or transfers it – in other words, how much value their holdings acquired or lost over time. This is because the IRS considers virtual cryptocurrencies to be “property” for tax purposes, just like stocks and gold.
So, even if you sell crypto immediately after receiving it as a gift, you may still owe taxes on it, depending on whether its value has increased or fallen.
Whether you file your own taxes or hire a tax professional, keeping a detailed transaction history will come in handy come tax season. Expect a lot of changes in how crypto is governed in the coming years as a new and evolving asset class, and seek out tax professionals who have experience and understanding with digital assets for an easier filing process.