Every day, many people choose to play through Internet casinos. Although we are usually quite clear about the tax aspect of gambling in land-based casinos, it seems that we are not so clear about it in online casinos. Let’s learn more about it.
Online gambling and taxation
First of all, we must bear in mind that gambling should always have a tax consideration. Let’s not forget that we must record winnings from gambling. Therefore, they are a fiscal element that should always be considered from a tax point of view.
However, there is an important nuance and one that is, in fact, quite controversial: the difference between conventional online casinos or those operating abroad with a U.S. license.
If you are wondering about the difference, the answer is simple: a casino operating outside U.S. soil, but licensed in the country, is not required to report and show its players’ winnings to the IRS.
The difference is obvious: in state-licensed casinos, for example, in states like Pennsylvania, New Jersey, or Nevada, where online gambling is legal, must be reported winnings on slot machines or video poker machines exceed $1200.
On the other hand, winnings in table games are reported from certain amounts such as $600 or more and multiplying the bets by 300.
However, it must remember that regardless of whether the casino reports, legally, the responsibility to report winnings to the IRS rests with the citizen himself. That means that irrespective of what the casino decides, you should notify your winnings as a player.
What is the legality of online casinos outside the country?
We have already seen that an Internet casino licensed in the United States but located abroad is not obliged to declare the players’ winnings. But, be careful; that does not mean the player is legally responsible for paying taxes.
If you look at U.S. tax laws, any income of a U.S. citizen is taxable. And this income does not necessarily have to have been earned in the United States; we can get it in the United States, abroad, or on the Internet.
Therefore, if any source of income is subject to taxation, so is the profit earned in a foreign casino.
Are there exceptions? Some, but with nuances. Bingo, slot machines, and Keno may not be subject to the same taxation requirements. That has to do with considering a significant amount of money from which tax is levied.
In the case of bingo, it is $1200; in the case of Keno, it is $1500: however, for lotteries, sweepstakes, or betting pools, it is $5000.
In any case, we must know that when a legal application of withholding tax is made, we will withhold 24% of the winnings on the payment. Theoretically, this withholding is the one that is sent directly to the tax authority.
How do online casinos report to the IRS?
If we understand that gambling winnings are taxable income, we understand the obligation to report such winnings by the intermediary, in this case, the casino.
Not only is the player obliged to assume his tax liability: but companies are also obliged to report winnings based on the assumptions we have seen in the previous section of the article.
The communication is made directly between the entity and the tax authority. The player should use the usual channels on the part; depending on the income obtained, they can use the W-2G Form to check the taxes withheld.
Another important aspect is that of winnings in betting houses that use cryptocurrencies. Although there may seem to be a loophole in this section, this is not the case. At the moment, digital money is converted into fiat money; if it comes from a capital gain, it must be taxed.
What about losses in online casinos?
The aspect of losses in Internet casinos is another little-known yet important factor. It is possible in the United States to try to offset part of the losses through tax deductions.
An important consideration in all of this is that all your accounts, records, and communications with the IRS must be very clear to claim the losses as a deduction item.
The total deduction can reach the total earnings number. That is, we can deduct losses up to the value of the gains. If you have made a profit of $20,000 and accumulated a loss of $30,000, the maximum deduction limit will be the $20,000 profit. In other words, you will be taxed on $10,000.
For years I have studied American finance regulations. All the information in this blog is sourced from official or contrasted sources from reliable sites.
Salesforce Certified SALES & SERVICE Cloud Consultant in February 2020, Salesforce Certified Administrator (ADM-201), and Master degree in “Business Analytics & Big Data Strategy” with more than 13 years of experience in IT consulting.