How to Gift Crypto to Family and Friends?
Giving crypto as a gift is a smart, modern way to show you care about someone’s financial future. Unlike regular gifts, crypto can grow in value over time. It’s also easy to send across borders, no matter the recipient’s location. If you want to offer a valuable, long-term present, consider gifting crypto.
In this comprehensive guide, we will explore the intricacies of cryptocurrency gifting, its methodologies, regulatory implications, and potential long-term impact on both the giver and recipient.
What Are the Main Ways to Give Crypto as a Gift?
To start giving cryptocurrencies as a gift, first, we need to understand how you can transfer those assets to the person receiving them. There are several options, each with advantages and disadvantages, depending on various factors. Here are the best ways to gift crypto to family and friends:
- Exchange Platform
- Gift Cards
- P2P Payment App
- Software Wallet
- Paper Wallet
- Hardware Wallet
In the following sections, we’ll explore the methods mentioned in detail for giving crypto as a gift.
Through an Exchange Platform
The most straightforward way to gift your cryptos is through an exchange. Crypto exchanges allow you to send cryptos from your exchange wallet to the receiver’s wallet. Ensure you send the crypto to a compatible wallet address to avoid any issues with the transfer. For example, don’t send Bitcoin to an Ethereum wallet.
The process of sending crypto through an exchange is straightforward. First, access your exchange platform. Once inside your crypto wallet, choose the gifting option. After that, insert the information of the person you wish to send crypto to. The necessary data will vary from platform to platform, but you will need their wallet address at the very least. Lastly, the transaction will be validated, and the funds will be transferred.
Pros
- Fast: The transfer can happen immediately or within the hour.
- Beginner-Friendly: Since it works like a traditional money transfer, even people new to crypto will find it easy to navigate.
Cons
- Fees: Some platforms charge a percentage fee when users buy or transfer funds.
- Recipient Information: Since you need the receiver’s exchange information, there are better ways to surprise them with a crypto gift.
Giving Gift Cards
Crypto gift cards, available in digital and physical forms, operate like conventional gift cards but are loaded with cryptocurrency. Recipients can redeem the crypto in their centralized or decentralized wallets or use it for online purchases.
To set up a gift card, you just need to choose the platform you prefer, set up an account, and buy and validate the card. After your loved one receives it, they will follow the same process: create an account on the same platform and redeem the gift.
Pros
- Tangible Gift: Physical crypto gift cards are perfect for those who enjoy giving and receiving physical gifts.
- Ease of Redemption: Recipients can easily transfer the crypto to their wallet anytime.
Cons
- Limited Choices: Depending on the platform chosen, not all currencies may be available in gift card form.
- Dependent on a Platform: You need to choose an exchange to generate the gift card, and it may not be the recipient’s preferred platform.
Using a P2P Payment App
Some peer-to-peer payment apps, such as PayPal, Venmo, and Cash App, allow users to buy and send crypto to their family and friends.
Making the transfer inside these apps is also very simple and similar to using an exchange. You choose the currency you prefer, and after a KYC and verification process, you select the methods by which the sender will gift the funds, and the receiver will receive them and finalize the transaction.
Pros
- Convenience: Most of these apps are already part of our daily lives, and you can make transactions using only the recipient’s email address.
- Versatility: Since P2P apps are accepted as payment methods on several websites, the receiver can use their gift to access multiple products and services.
Cons
- Higher Fees: Usually, P2P apps charge higher fees for crypto transactions than exchange platforms such as Binance.
- Limited Availability: PayPal and Venmo are only available for crypto transfers to US users.
Setting Up a Software Wallet
To give your loved one complete access and control over their crypto gift, you can choose to set up and give them their software wallet. This method requires more technological know-how since you need to download a software wallet, set up an account, and, most importantly, remember the seed phrase (a series of 12 or 24 random words necessary for wallet recovery).
After you set up the wallet, you can transfer the funds to it, and the receiver can access those funds by downloading the software and entering the seed phrase.
Pros
- Vast Choices: When setting up a software wallet, you can choose from thousands of available currencies.
- Full Ownership: The receiver will fully control their crypto assets after accessing their wallet.
Cons
- Skills Required: Some technological skills and crypto knowledge will be required when setting up the wallet.
- Responsibility: Remembering and keeping the seed phrase safe is essential, as lost funds cannot be recovered.
With a Physical Paper Wallet
Paper wallets are a kind of cold wallet in which the secret keys to access the funds are printed out on paper or other physical material for the user to keep safe. When you print those keys, they are removed from the network and are accessible only through paper. Even though the tokens remain online, they are inaccessible without the printed keys.
Suppose you want a tangible and customizable way to give cryptocurrency as a gift. In that case, a paper wallet can be a great choice, offering a personal touch and enhanced security by keeping the keys offline. Store the paper wallet securely to protect it from physical damage or loss.
Pros
- Personalize Your Gift: Companies offer infinite ways you can customize the wallets.
- Safety: Since the assets are stored completely offline, they will be more secure and protected.
Cons
- Complex for Beginners: Newcomers to crypto may need help figuring out how to use a paper wallet since they have to move the funds to a software wallet to do so.
- Keep the Keys Safe: Like a software wallet, you must keep the private keys secure or lose access to your funds.
Giving a Hardware Wallet
This is another way of cold storage, similar to paper wallets. However, in crypto hardware wallets, a device is used to keep the coins offline, and they are only accessible by their own apps or through a USB port.
If this is your method of choice for giving crypto as a gift, first, you must buy the device and follow the set-up process:
- After you receive the device, visit its official website and download the proper software version.
- When the download is complete, connect the hardware wallet to the computer using the USB cable.
- Create the PIN to protect your device.
- Write down the seed phrase generated by your device and keep it secure.
- Follow the on-screen instructions provided by the software to set up your wallet. Once set up, you can add various cryptocurrencies and manage your funds.
You can add the desired funds and prepare the gift when this process is complete. Remember to provide the receiver with the PIN and seed phrase so they can also manage the funds.
Pros
- Security: This is the safest method available and may be the best choice when gifting higher amounts.
- Full Ownership: Hardware wallets give owners full control over their funds.
Cons
- Higher Cost: Hardware wallets typically cost $45 to $200, on top of the money you’ll spend to buy cryptocurrency.
- Complex Method: Some technical knowledge is required to buy, set up, and use these wallets.
Do Taxes Apply When Giving Cryptocurrency as a Gift?
In the United States, crypto given as a gift is usually not taxable — but there are limits. As of 2024, the limit amount you can give as a gift without paying taxes is $18,000. If your gift surpasses this amount, you must fill out a Form 709 and pay the corresponding tax.
If the person who received the crypto sells it within the year, it’s considered a short-term capital gain and taxed as ordinary income. After one year, it’s a long-term gain and taxed at a lower capital gains rate.
One important thing to remember is that crypto values can change quickly; it’s essential to register the purchase price and its value at transfer time. Without this information, the gift’s recipient must use the current market cost, which might increase their tax if they sell at a profit.
Losses will be treated differently if the price goes down after your gift is given. A capital loss is recorded if the asset sells for less than the purchase price and its value when gifted. This loss can be used as a tax deduction, up to $3,000 for married filers and $1,500 for separate filers.
Note that these values are per year. So, for instance, if you lose $6,000, you can write off $3,000 in the current year and half in the following year, even if the whole loss occurred in the same year.
How to Choose Which Cryptocurrency to Gift?
When deciding which cryptocurrency is the best gift for a friend or family member, you must consider several factors before deciding to ensure your gift will be valuable and appreciated. With thousands of cryptocurrency options available, the first step is understanding whether the gift recipient has any coins in mind.
If they don’t have any preference, choosing a well-established currency, like Bitcoin, Ethereum, or Solana, is an excellent choice. These coins have a great track record, higher liquidity, and are generally considered safer. Additionally, consider the coin’s use case and future potential; for example, Bitcoin is often viewed as a digital store of value, while Ethereum is known for its smart contract functionality.
It’s also essential to research current market trends, including recent price movements, adoption rates, and any upcoming developments that could affect the coin’s value. By carefully evaluating these factors, you can choose the best cryptocurrencies to buy that align with the recipient’s potential interests and offer a balance between risk and reward.
Final Thoughts on Giving Crypto as a Gift
You can give crypto as a gift using several methods, such as gift cards, exchanges, peer-to-peer payment apps, software wallets, paper wallets, and hardware wallets. Remember to choose the method that best suits the receiver’s crypto knowledge and the currency and amount you feel comfortable giving.
Additionally, it’s essential to consider the tax implications and keep accurate records of the crypto gift’s purchase price and transfer value. This information will help the recipient manage their tax responsibilities should they decide to sell the cryptocurrency.
FAQs
Can I transfer crypto as a gift?
Yes, you can transfer crypto as a gift using exchanges, gift cards, crypto wallets, or peer-to-peer payment apps.
How to set up a crypto wallet as a gift?
First, download the software wallet of your choice, create an account, and store the seed phrase safely. Then, add the funds you want to give and share the access details with the recipient.
Do I have to pay taxes when giving cryptocurrency as a gift?
In the USA, you usually don’t have to pay any taxes when gifting crypto as long as the amount given is under $18,000.
How much crypto can you receive as a gift?
There is no limit on how much crypto a person can receive as a gift. However, if the amount exceeds $18,000, they must file for a gift tax return if living in the US.
How do I use a cryptocurrency gift card?
To use a cryptocurrency gift card, redeem it by entering the card’s code into the corresponding platform’s website or app. The redeemed crypto can then be transferred to your wallet or used for online purchases.
References
- IRS: Taxes Form 709
- IRS: Gift Tax
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