October 9, 2020 | AtoZ Markets – Paying taxes on your gambling winnings is no fun — but it is legally required. CryptoManiaks has a list of all the best crypto gambling sites and all of them, everyone, still qualify as sites where you’ll need to pay taxes on your winnings.
These days it’s easier than ever to calculate your taxes on crypto. There’s even a crypto tax program that helps you speed up the process while staying accurate. But what about the taxes from your winnings?
Crypto Gambling Taxes
The taxes you’ll need to pay from your crypto gambling winnings are the same as those you’d need to pay from regular gambling winnings.
This is because crypto gambling is the same as regular gambling — you’re simply using a different payment method.
Most of the gambling sites that accept cryptocurrencies do so only as a way to provide another payment method.
Some of them allow you to gamble on casino games, card games, sports and esports betting, directly with your deposited Bitcoin and Ethereum… but it’s still only another payment method like ACH or credit or debit cards.
Granted, gambling with cryptocurrencies does provide several benefits over traditional fiat gambling.
- Faster deposits
- Faster withdrawals
- Often lower deposit and withdrawal fees
But at the end of the day, crypto is simply one more funding method among many others. So you’ll still need to calculate out your gambling taxes and pay them to your appropriate government. You also may need to pay state taxes as well as federal taxes — it depends on the local laws of the city and county you live in.
A great article on Kiplinger helps determine the rules you must follow (if you live in the US). If you live in the EU or elsewhere, the laws can be similar but you’ll need to do your own research…especially because in the EU, each country tackles gambling tax quite differently from each other.
The first rule to follow:
According to the Kiplinger article: Report your winnings.
“All gambling winnings must be reported on your tax return as “other income” on Schedule 1 (Form 1040), line 8. If you win a non-cash prize, such as a car or a trip, report its fair market value as income.”
This is a necessary step because the gambling casino — even online casinos — will report your winnings. They report them because it’s the law and also because in their books they report this as a “loss”.
The second rule to keep in mind is:
“You’ll receive an IRS Form W-2G if your gambling winnings are at least $600 and the payout is at least 300 times the amount of your wager. The thresholds are $1,200 for bingo or slot machine winnings, $1,500 for keno winnings and $5,000 for poker tournament winnings.”
These rules and numbers are the same for online casinos as well. Even if the online casino is based in a different country, you should still report your winnings. After all, if an audit ever happens you’ll need to show where that money came from anyway. Better to be safe.
The third rule is:
You can deduct your losses on your taxes.
This is a silver lining. You don’t need to pay taxes on all your winnings. You just need to pay taxes on your overall winnings. So if you won $1000 but lost $400…then you need to pay taxes on $600.
Keep in mind, though, “you can’t deduct gambling losses that are more than the winnings you report on your return. For example, if you won $100 on one bet but lost $300 on a few others, you can only deduct the first $100 of losses. If you were totally down on your luck and had absolutely no gambling winnings for the year, you can’t deduct any of your losses.”
These three rules are only the tip of the iceberg.
Gambling law can get quite complex. Just dig into the Kiplinger article to get a better head start. Your best bet is to consulate a tax attorney, especially if your winnings are quite substantial and might trigger an audit.
At the end of the day, as long as you keep a paper trail and show you tried your best, you’ll be able to get on the right track for any future inquiries.