Crypto Tax Issues Regarding Online Gambling

Aiyo, Queens get the money, long time no cash

I'm caught up in the hustle when the guns go blast

The fool retaliated so I had to think fast

Pull out my heat first, he pull out his heat last

-Give Up the Goods (Just Step) by Mobb Deep

When it comes to gambling, I probably have the world’s record for the worst luck. This record keeps me away from casinos and online gambling sites. I’m aware that there are people that don’t have the same bad luck like me. There are actual people that make a living by gambling. There are also people that are just plain lucky and win a lot without any skill. Did you know that there are people that win cryptocurrencies like bitcoin? Rule number one in dealing with the IRS is that they always want their piece of the pie. Therefore, cryptocurrencies earned by gambling is considered a taxable event and must be reported. In this article, I will discuss the taxation issues regarding gambling winning and cryptocurrencies.

Depending on the amount of your winnings, you may receive one or more Forms W-2G, which reports the amount of your winnings, as well as the amount of tax that was withheld, if any. Your gambling winnings are generally subject to a flat 25% tax. However, some types of gambling winnings over $5,000 are subject to income tax withholding. This includes any sweepstakes, or lottery. If you win a non-cash prize, like a bitcoin, you will be responsible for paying taxes on the fair market value of the cryptocurrency.

While miscellaneous deductions subject to the 2% of adjusted gross income floor are not allowed for 2018 through 2025 under the Tax Cuts and Jobs Act, the deduction for gambling losses isn’t subject to that floor. So, gambling losses are still deductible. It may be possible to deduct your gambling losses, even if you used a cryptocurrency. The IRS requires you to keep detailed records of your gambling winnings and losses, and to keep any related documents, including receipts, tickets, payment slips, statements, Form W-2G, and Form 5754. You must be able to prove both your winnings and losses if you wish to deduct your losses. The IRS suggests that you keep a gambling log or diary. If you used a cryptocurrency like bitcoin, make sure to be able to prove the fair market value of the bitcoin used. Report any gambling losses on your Schedule A on Form 1040.

Another issue to consider is that if you used a cryptocurrency to make a wager then this is a taxable transaction. Remember that the IRS views cryptocurrencies as property, not currency. Therefore, if you win a bitcoin via gambling then you must pay two types of taxes. The first tax will be considered a capital asset sale and, if you win then the income, will be considered gambling income. This can be a huge headache when it comes to filing your tax returns.

Most of the United States neither legalized nor forbidden online gambling activities for ordinary players. To that end, players must abide by federal laws, particularly the Unlawful Internet Gambling Enforcement Act. I would recommend that you are conservative if you plan to participate in online cryptocurrency gambling sites. Review the federal and state laws regarding gambling. Don’t try to be slick and not report winnings. The IRS is on a warpath regarding taxpayers reporting their cryptocurrency taxable transactions. The IRS is getting closer to finding ways to locate taxpayers that are not in compliance. The penalties may be severe if you are caught in an audit.


Need help with your crypto taxes? Well, contact Jamaal "Crypto J" at!




IG: @36chamberscryptotaxes

Twitter: 36cryptotaxes

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