Tax Implications of Using Crypto for Online Gambling in the USA

16/09/2024 | Categories: Bitcoin Guides | Published by: Heather | Last updated: 16/09/2024

At BTCGOSU, we strive to provide you with the best options for online gambling with cryptocurrencies, listing only reputable casinos and sportsbooks for you to choose from. However, it is important that we make you aware of the tax implications that come with using digital currencies like Bitcoin. We know that nobody likes to hear they have to pay tax, but unfortunately, it’s a fact of life and we have no choice but to suck it up if we want to be law-abiding citizens.

This guide focuses on the tax rules for cryptocurrency gambling in the USA, helping you understand how profits, transactions, and winnings might impact your tax responsibilities. However, tax regulations can vary significantly depending on where you live.

It’s important to remember that the rules discussed here primarily apply to the United States. You should check local regulations if you’re betting from another country. Being informed about these tax implications can help you manage your crypto assets wisely and avoid any unexpected issues with tax authorities.

This guide is also very brief and just outlines the tax implications, but we would strongly recommend that you speak to your Accountant or Financial Adviser for more detailed information as we are not tax experts.

This simple guide is to help you learn a little bit about the tax implications of using crypto for online gambling.

Main Points About Cryptocurrency Taxes

Taxable Profits: If you sell or use cryptocurrency for online gambling and make a profit, you’ll owe taxes on that gain. This is similar to how you’d be taxed on profits from selling stocks.

Using Crypto for Purchases: When you use cryptocurrency to buy goods or services, including betting on gambling sites, you owe taxes based on the difference between what you paid for the crypto and its value at the time you spent it. This means you might have to pay both sales tax and capital gains tax.

Crypto as Payment: If you receive cryptocurrency as payment for gambling winnings or other services, you must report it as income.

Mining and Staking: If you mine cryptocurrency or earn it through staking, it’s considered income. You’ll need to report the value of the crypto when you receive it.

When Are Cryptocurrencies Taxed?

The IRS views cryptocurrencies as property, so you’ll face taxes in these scenarios:

Selling or Using Crypto: If you sell crypto for more than you bought it, or use it for gambling, you have to report the gain or loss.

Receiving Crypto: If you get paid in crypto for gambling services or receive it through mining, it’s taxed as income.

Examples of Taxable Events

Buying with Crypto: If you use Bitcoin to place a bet and its value has increased since you bought it, you’ll need to report the capital gains. For example, if you bought 1 BTC for $6,000 and used it to place a bet when its value was $8,000, you’d owe taxes on the $2,000 gain.

Cashing Out: When you convert crypto into cash. The difference between your cost basis and the current market value is taxable.

Exemptions

Not all cryptocurrency transactions are subject to taxes in the USA. Here are a few types of transactions that are generally not seen as taxable events:

Buying Cryptocurrency with Fiat Money

When you purchase cryptocurrency using fiat money (like US dollars), you do not incur any tax liability. The transaction itself is not taxable since you are simply exchanging one type of currency for another. However, it’s important to note that taxes may come into play later. If you sell, exchange, or use the cryptocurrency for other transactions, potentially triggering capital gains or losses depending on the price change.

Donating or Gifting Cryptocurrency (Under Certain Limits)

Gifting or donating cryptocurrency is often non-taxable, provided the transaction falls within specific limits. For gifts, you can transfer up to $18,000 per person per year (as of September 2024) without triggering a gift tax. If you give more than this amount, you may need to file a gift tax return. Although actual taxes normally apply only to very large lifetime amounts. Donations of cryptocurrency to qualified charitable organizations are also not taxable.

Transferring Cryptocurrency Between Your Own Wallets

Moving cryptocurrency between wallets you control is not considered a taxable event. Whether you’re transferring crypto from an exchange to a personal wallet or between two of your personal accounts, the transaction is not taxable since ownership has not changed.

However, it’s essential to keep detailed records of these transfers. This is to prove that no sale or taxable event occurred during the transfer. Particularly if the IRS audits your transactions.

While these transactions aren’t taxable, it’s crucial to know how and when taxes apply to other activities involving cryptocurrency, such as selling, exchanging, or using it for purchases or gambling. Keeping proper documentation is vital to ensure compliance with IRS regulations.

Keeping Track

For accurate tax reporting, keep detailed records of all your cryptocurrency transactions. Many platforms and exchanges offer tools to help you track gains and losses. Consulting with a tax professional familiar with cryptocurrency can also ensure you handle your taxes correctly.

Understanding these basics can help you manage your tax obligations when gambling online with cryptocurrencies. Ensure you prepare for tax season and avoid any surprises from the IRS.

FAQS

Below we have listed some frequently asked questions. But again, we recommend that you consult a tax expert to ensure you keep your taxes in order.

Are cryptocurrency gambling winnings taxable in the USA?

Yes, all gambling winnings, including those from cryptocurrency, are considered taxable income in the USA. The IRS requires you to report these winnings, regardless of the amount.

How do I report cryptocurrency gambling winnings to the IRS?

You must report your cryptocurrency gambling winnings on Form 1040 under “Other Income.” If you sell or exchange the crypto for fiat currency before using it for gambling, you may also need to report any capital gains or losses.

Do I need to track every cryptocurrency transaction for gambling?

Yes, the IRS requires you to maintain records of all cryptocurrency transactions. This includes tracking the value of crypto when acquired, used for gambling and cashed out to calculate any capital gains or losses.

What is the tax rate on crypto gambling winnings?

The tax rate on crypto gambling winnings depends on your total income. Winnings are taxed as ordinary income, meaning the rate can vary from 10% to 37% based on your tax bracket.

Do I need to pay taxes if I only gamble with cryptocurrency and don’t cash out?

Even if you haven’t converted your crypto to cash, you may still owe taxes on gains or losses when gambling. The IRS treats the use of crypto as a taxable event, so you'll need to calculate gains based on the value of the crypto when you use it.

Are gambling losses deductible if I use cryptocurrency?

Yes, gambling losses can be deducted, but only up to the amount of your reported winnings. You must itemize your deductions on your tax return, and proper records are required to claim these deductions.

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

Failure to report gambling winnings, including those from crypto, can result in penalties, interest on unpaid taxes, and even criminal charges for tax evasion. It’s essential to remain compliant with IRS reporting rules.

Do I need to report small cryptocurrency gambling winnings?

Yes, all gambling winnings, no matter how small, must be reported. The IRS does not have a minimum threshold for reporting crypto winnings, so even small amounts are subject to tax.

Are there any special forms for reporting crypto gambling winnings?

While there isn’t a specific form for crypto gambling winnings, you’ll need to report them as "Other Income" on Form 1040. If you incurred capital gains or losses through crypto transactions, you’ll also need to file Form 8949 and Schedule D.

How do I calculate the fair market value of my cryptocurrency winnings for tax purposes?

The fair market value is the price of the cryptocurrency at the time you won or used it for gambling. You can use an exchange rate from a reliable crypto exchange to determine this value in U.S. dollars.