Nearly every major faith has a religious law or tradition of charitable giving. Zakat, a form of almsgiving specific to Islam, is an annual duty of Muslims around the globe who meet certain financial criteria.
If you hold some form of cryptocurrency like Bitcoin or Ethereum, you’ll be interested to know that it’s not only possible to make a Zakat donation to nonprofit organizations, it’s a fairly simple process too. Whether you give Zakat during Ramadan or another time of the year, bookmark this page to refer back to when you want to give Zakat in cryptocurrency.
What is Zakat and how is it calculated?
Zakat, for those unfamiliar with the concept, is one of the five fundamental pillars of Islam. It is the duty of all Muslims whose income is over the Nisab amount to give Zakat, which is aimed at helping the less fortunate. Zakat is traditionally calculated as a 2.5% tax on wealth. Accordingly, the greater one’s wealth is, the greater one’s Zakat will be.
The Qur’an lists eight categories of zakat recipients: “Alms are meant only for the poor, the needy, those who administer them, those whose hearts need winning over, to free slaves and help those in debt, for God’s cause, and for travellers in need. This is ordained by God; God has the knowledge to decide.” (Qur’an, 9:60, translation: M.S Abdel Haleem)
Is Zakat owed on cryptocurrency holdings?
If you hold cryptocurrency, you should include its fair market value when calculating Zakat. According to the National Zakat Foundation, “any cryptocurrency or token purchased to resell will always be Zakatable.” If you’re unsure whether you plan to sell an asset or token, the Foundation recommends that you consult with an imam or religious advisor.
How do I calculate Zakat?
Your Zakat should be calculated annually, as your financial situation can change from year to year. Figuring out your Zakat requires that you factor in all of your net assets such as:
- Property holdings
- Business investments
- Cash on hand
- Gold and silver holdings
By using a reliable Zakat calculator, you can quickly determine the amount that you need to pay.
How (and why) should I give Zakat as a cryptocurrency donation?
If you hold cryptocurrency and would like to donate in cryptocurrency rather than cash, that option is available to you. In fact, more than one thousand nonprofit organizations have begun to accept cryptocurrency donations.
Here are four reasons to consider giving Zakat in cryptocurrency instead of cash:
- You already hold Bitcoin or another cryptocurrency
- It’s the most tax efficient form of charitable giving
- You want to support nonprofits that are innovative
- Making a donation is a secure and easy process
As a bonus, all donations to The Giving Block’s Impact Index Funds are currently being matched. In other words, the impact of your Zakat donation can be doubled by giving right now. (Last updated in May 2022.)
Are Zakat donations tax-deductible?
Zakat donations may be tax-deductible, but it depends on your method of giving. By donating to a registered nonprofit organization or charity, your donation is likely considered tax-deductible.
If you choose to make a cryptocurrency donation for Zakat, it’s essential to know that many crypto donors have the added perk of being able to offset some of their capital gains tax—something not offered to cash donors. These tax benefits are some of the best reasons to donate in cryptocurrency. By comparison, it is much less tax-efficient to convert your cryptocurrency to cash and then donate it, because you will incur taxes through the currency conversion process, and therefore have less available to donate to the nonprofit of your choice.
(Note: This is not tax or financial advice. Please speak with a qualified tax or financial advisor.)
How do I calculate the cash value of Zakat in cryptocurrency?
To give Zakat in cryptocurrency, you’ll need to figure out how much Zakat you are supposed to pay, and then compare that with the value of the cryptocurrency asset(s) you intend to donate. In order to determine the fair market value of your crypto assets, you have a few options available to you.
First, you can head over to reliable websites like CoinMarketCap.com or CoinGecko.com, search for an asset and see what it’s currently worth. Alternatively, you can see the current values of many cryptocurrencies on your preferred crypto exchange, but these sites may not be as comprehensive as those mentioned above.
If you choose to give Zakat to a nonprofit or fund on The Giving Block, it’s even simpler. Just explore our expansive list of nonprofits, Impact Index Funds and active crypto fundraising campaigns.
Once you’ve chosen a cause to support, its on-page Donation Form will allow you to select a cryptocurrency and input a value. From there, the USD Value of the cryptocurrency will display on the Donation Form.
When you have entered your desired amount, just follow the instructions to process your donation and receive a tax receipt.
Which charities support cryptocurrency donations?
Thousands of charitable organizations support donations in a variety of cryptocurrencies such as Bitcoin, Ethereum, Solana, USDC, and even Shiba Inu. These crypto-enabled nonprofits span the full range of causes and impact areas, from disaster relief to poverty reduction.
No matter how you give, we applaud your commitment to improving the lives of others through charitable giving. If you wish to give Zakat using some of your crypto, The Giving Block is your one-stop destination to find and support organizations making a positive impact on the world.