Recent media coverage of Bitcoin has focused on whether the nearly six-year-old online payment system can take the place of traditional currency, its relationship to illicit websites like Silk Road, and other similarly sensationalistic topics. While these stories sell, they do not answer the questions that arise when a nonprofit is considering receiving Bitcoin payments. In fact, nonprofits are leading the rapid growth in Bitcoin use, the rewards of accepting Bitcoin far exceed the minimal risk associated with it, and accounting for Bitcoin contributions is quite simple as well.
Bitcoin contributions are becoming more widely accepted, especially by nonprofits. The Wikimedia Foundation, the 501(c)(3) that operates Wikipedia, began accepting Bitcoin donations on July 30, 2014. The organization received over $140,000 in Bitcoin donations on the first day alone. William McNulty, Founder of Team Rubicon, the four-year-old non-governmental organization with 21 employees, raised $72,000 in Bitcoin in just one campaign. Even United Way, the world’s largest charity, has partnered up with Bitcoin processor Coinbase since September to begin accepting Bitcoin. The websites of the two leading US Bitcoin processors currently report that they serve about 40,000 merchant accounts each, up from less than 1,000 three years ago. The adoption of this new form of payment comes with good reason.
Key players and innovators in the nonprofit space have embraced the five-year-old Bitcoin so quickly because it reduces costs and offers new revenue streams at very minimal risk to them. Here’s how:
Bitcoin processing is far cheaper and easier to set up than traditional merchant services. The best traditional merchant services can still charge average fees of over 2% of total credit card revenues or tens of thousands of dollars a year for even a small nonprofit. This problem is exacerbated for nonprofits with a large web presence because merchant service providers charge more for transaction when cards are not swiped at the point of sale. On the other hand, BitPay, a leading Bitcoin payment processor offers an unlimited, absolutely free merchant service that can be set up in minutes.
Bitcoin payments eliminate chargebacks. Credit cards and even checks are subject to chargebacks which take time to track down and resolve while Bitcoin receipts, by their very nature, are safely in your account once deposited. This reduces the risk of fraud and can save accounting staff time.
With a current market capitalization just under $5 billion, Bitcoin allows organizations to tap international funding pools more easily. Global fundraising campaigns and other operations become much easier when transactions associated with foreign currency conversion and bank clearing are significantly reduced.
Many point out the volatility of Bitcoin or fear of the possibility that a processor may fold as a barrier for its use, but that is a risk that is taken on by those who own Bitcoin, not by those who receive payment in Bitcoin. Bitcoin processors automatically convert payments received to dollars for merchants and deposit such transactions to the merchant’s account on a daily basis (often more quickly than traditional payment methods).
Organizations accepting Bitcoin should consider how to acknowledge Bitcoin donations, report Bitcoin receipts, and account for Bitcoin transactions efficiently. Recipients of Bitcoin payments should be sure to:
Report Bitcoin donations as a non-cash gift. The IRS classifies Bitcoin as intangible property, not currency, so it is not the charity but the donor’s responsibility to document the value of the gift. Other information typically included in a thank you or acknowledgement letter as outlined in IRS Publication 1771 should also be included.
Understand how state and relevant tax regions handle “virtual convertible currencies” for sales tax purposes. The New York State Department of Taxation and Finance recently declared Bitcoin transactions equivalent to a barter, making them subject to sales tax in certain instances but many states have yet to weigh-in.
Integrate Bitcoin applications with your accounting software. Intuit recently developed PayByCoin, a system to integrate QuickBooks and Bitpay so that Bitcoin payments received will seamlessly appear in QuickBooks. BitPay touts more than 20 other such integrations. Such integrations can dramatically reduce accounting staff’s time and should be considered when choosing a Bitcoin processor.
While the estimations and analysis continue on the future of Bitcoin, comfort can be taken in knowing that at least in its short existence, this innovation has allowed nonprofit organizations to accomplish their missions more effectively by reducing the cost of doing business.
Bill Sissamis is a supervising senior accountant in Tate & Tryon’s Outsourced Services department and can be reached at bsissamis@tatetryon.com.
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