Taxes and Gambling Online


You get lucky, and those online gambling skills you’ve been honing are now really paying off. Like the online casino takes its house edge or a rake to the pots, the government might want some of what you win. IRS Topic 419 states, ‘gambling winnings are fully taxable and must be reported on the return.’


At the moment, with so many online casinos and poker rooms licensed from abroad, declaring wins from online gambling is only technically mandatory. There is no legal structure for the IRS to use to enforce US tax law. For this reason many people choose to not report online gambling wins without worry. Someday countries like the United States could establish tax treaties with countries who export online gambling and put an enforcement structure in place, but as of yet such treaties do not exist.


Below is a breakdown of how the IRS currently treats gambling wins as taxable income. Please note, that this is not authoritative legal information. Always consult a professional for the most detailed and accurate information on which laws apply to you and in what manner they apply. If you gamble online and have an accountant, get them to keep an eye on tax legislation especially as it effects online gambling. Eventually the following conditions may apply to you. Few things are worse than an afternoon at the dentist (depending on the dentist, I guess), but an audit is certainly one of them. Indeed, with some politicians already calling for more regulation, expect online gambling to become part of the formal tax economy in the not too distant future.


Tax forms are irritating things. Though there is some sort of logic to them it is not always easy to intuit. Fortunately there are, at least in the United States, no confusing addendums or extra forms for reporting your gambling wins to the IRS. Gambling wins are simply “other income” as far as they are concerned, and should be reported on line 21.


Technically, you do not need to report gambling wins totaling less than $600 throughout the year –so, to use an extreme example, if you played 600 hands throughout the tax year, and won $1 every hand you are obligated to report this. Despite this technicality, there is an implied honor system whereby the IRS wants people to report their gambling winnings every year voluntarily, even if it is less than $600. Just remember that a casino is legally obliged to report player annual winnings in excess of $600 per annum. In such circumstances the casino should send you Form W-2G to submit with your tax report. Furthermore, if you ever win more than $5,000 at a casino, the casino itself is legally required to only pay you 75% of what you won and withhold the remainder for taxes.


If you do report your online gambling wins or are required to report gambling wins via live casino gambling, now might be a good time to start itemizing deductions. If deductions are itemized on your tax report, you can deduct your gambling losses. This deduction can be claimed on line 27 of the Schedule A Form 1040. Also note that if both you and your spouse have gambling losses to deduct and you file joint returns, the losses can be combined. If your losses are more than your wins, however, you must still report the wins. Even though it is un-enforced, it may be advantageous to report your online gambling wins because the deduction on losses could improve your tax situation ever so marginally. To be sure, ask your accountant.



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