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How is crypto gambling taxed?

Dernière mise à jour: 2 years ago

Principaux points à retenir

  • Crypto gambling is similar to traditional gambling in many ways, including that you’ll pay taxes on your winnings.
  • Crypto gambling winnings are subject to income taxes while disposing of your crypto could require capital gains taxes.
Crypto Gambling Tax Guide A (1)

While some may describe investing in crypto as a gamble, that’s not the focus of today’s blog post. Today, we’ll be looking at crypto gambling: how it works, what it involves, and how it may be taxable in your region.

What is crypto gambling?

Crypto gambling is exactly what it sounds like: combining the traditional world of gambling with the use of crypto assets. As crypto gambling has grown in popularity, so has the number of crypto casinos — these are typically online platforms that enable users to bet their crypto assets for a chance of winning.

Typically, these online crypto casinos consist of similar games as a normal casino: slots, poker, lotteries, sports betting, and more.

The exact process of crypto gambling may vary somewhat by platform. Rather than having you gamble your crypto directly, some platforms may require you to convert your crypto to U.S. dollars, which is a taxable event. You’ll have additional tax implications for winning crypto from gambling and, later on, for selling that crypto.

What to be wary of with crypto gambling

It’s important to note that with the increase in crypto gambling’s popularity, there’s also been growth in the amount of fraudulent crypto gambling sites. Malicious sites like these attempt to steal assets from the user, whether by not letting you withdraw your winners, creating malignant smart contracts that drain funds, and more.

Always make sure to do your own research to ascertain whether or not a crypto gambling site is reputable before engaging with it.

How is crypto gambling taxed in Australia?

In Australia, there is limited guidance on the tax treatment of crypto gambling and any subsequent rewards. This article from November 2020 states that both depositing funds in the form of crypto assets into a crypto gambling site, and receiving rewards in the form of crypto assets from a crypto gambling site, will both constitute capital gains tax events. This means that if you’re an Australian taxpayer engaging in crypto gambling, you’ll need to track the value, cost basis, and any associated gain or loss, relating to those transactions. We recommend talking to a local accountant if you need clarity on how to treat any crypto gambling transactions.

How is crypto gambling taxed in the US?

In the US, the federal government does not have laws explicitly outlawing or legalizing gambling with Bitcoin or other cryptocurrencies. That said, gambling is heavily regulated at the state level with most states having laws that make gambling with crypto either illegal or heavily restricted. It’s important to research the legality of participating in crypto gambling based on where you reside.

If crypto gambling is permitted in your region in the US, then it’ll likely be taxed as ordinary income at a federal and state level upon receipt. This means it’ll need to be reported as “other income” on your Form 1040. On top of this, if you go on to dispose of any crypto assets earned via gambling, capital gains tax may also come into effect. We recommend talking to a local tax professional to get clarity on how to accurately record crypto gambling transactions in your region.

How is crypto gambling taxed in the UK?

Typically in the UK, gambling winnings are not taxable. However, there is the possibility that if you cash out any winnings from gambling activities (either traditional or crypto-native) in the form of crypto assets instead of fiat currency, this may change things. Any gambling winnings earned in the form of crypto assets will need to be tracked for tax purposes, as future disposal events will be relevant for capital gains tax. The HMRC states that ‘where a customer considers that their transactions involving cryptoassets amounted to gambling, please make a referral following the process at CRYPTO100500. We recommend working with a local tax professional to determine what processes to follow when engaging with crypto gambling.

Other regions

If we haven’t mentioned your region specifically in this blog article, we recommend talking to a local tax professional. They will be able to help you determine what the most appropriate treatment of your crypto gambling transactions are for tax purposes in your region.

How can Crypto Tax Calculator help

A key takeaway from this article is that regardless of the tax consequences of your crypto gambling activity, there is an almost certain chance that you will need to be able to record the details of any related transaction for future use. That’s where we come in! Our algorithm will help categorize buys, sells, and cost bases relating to your crypto gambling activity so that you won’t have to manually track these values. Any gains, losses, and relevant cost bases made in conjunction with your crypto gambling winnings would also be taken into account when generating your final tax reports for a specific financial year.

The risks of crypto gambling As with any gambling, crypto gambling carries large financial risks. Firstly, there’s the chance of losing your crypto. If that’s not a risk you’re willing to run, gambling likely isn’t for you.

Additionally, with the increase in crypto gambling’s popularity, there’s been an increase in the amount of fraudulent crypto gambling sites. Malicious sites like these attempt to steal assets from the user, whether by not letting you withdraw your winnings, creating malignant smart contracts that drain your funds, and more.

Always make sure to do your own research to ascertain whether or not a crypto gambling site is reputable before engaging with it.

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Frequently asked questions about crypto gambling

01.Is crypto gambling legal in the United States?

The federal government has issued explicit guidance on crypto gambling. Seven states allow online gambling, while several others allow for online sports betting. Because there are no laws prohibiting it, you can assume that crypto gambling is legal in states where other online gambling is also legal.

02.Do I get taxed if I made less than $600 on a gambling site?

It’s a common misconception that you won’t pay taxes on earnings or winnings of less than $600. While it’s true that payers — in this case, gambling platforms — aren’t required to report your winnings on a tax form until they reach $600, you’ll still have to report the full amount to the IRS and pay taxes on it.

03.How does the IRS know if you won crypto gambling?

If you had more than $600 in gambling winnings, the payer likely had to submit a tax form to the IRS reporting them. Even if you didn’t exceed $600 of income, it’s still possible for the IRS to find out about your crypto transactions. The tax implications of simply paying the taxes you owe are less than the potential penalties of trying to hide your crypto winnings.

04.What happens if I don’t report my crypto gambling winnings?

If you fail to report certain income, including gambling winnings, on your tax return, you could be on the hook for penalties and interest. The IRS imposes penalties for negligence or disregard of the tax rules and for substantial understatement of income tax. Your penalty could be 20% of your underpayment of taxes plus interest.

05.How do you avoid taxes on gambling winnings?

You can avoid taxes on your gambling winnings by deducting your gambling losses. You can deduct up to the full amount of your gambling winnings. So, if your gambling losses equaled or exceeded your winnings, you wouldn’t be responsible for any taxes.

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