Complete Guide to Crypto Gambling Taxes
Aug 27, 2022
Complete Guide to Crypto Gambling Taxes
The gambling industry has been at the forefront of cryptocurrency adoption. Gamblers favor crypto payments because they are fast, easy, secure, transparent, anonymous, and low-cost. This has led to the emergence of an entire segment of online gambling websites known as “Bitcoin casinos.” Despite the name, such operators usually accept all major cryptocurrencies in addition to Bitcoin.
However, Internet betting sites are not the only ones that work with crypto. A few popular casinos across Las Vegas, Atlantic City, Macau, and Europe have implemented the use of crypto terminals. Thus, you can gamble using crypto offline as well.
Crypto Tax Regulations Around the World: The Challenges
The marriage between crypto and gambling has created not only an exciting symbiosis but also a few administrative challenges. The issue of taxation has become one of the hot topics concerning crypto gambling. Crypto taxes regulations are still in the making in many countries across the world.
To begin with, the laws in most states treat cryptocurrencies as property rather than money. This stems from the fact that crypto is seldom regarded as legal tender. In fact, the only country that has adopted Bitcoin as legal tender at present is El Salvador.
However, to return to the initial point of cryptocurrencies being usually considered property, this means the following: When you sell or buy property, you will usually either profit or lose from the transaction. With that in mind, legislations will generally ask you to pay a tax on your profit. That said, however, the legislators in some countries still argue that you need to be taxed on every crypto transaction you make.
The USA is one of the places where your gains from cryptocurrency are treated as capital gains. The tax will vary according to how long you hold the crypto. If you keep it for less than a year, your profit will be regarded as short-term capital gains and will be subject to up to 37% in tax. If you manage to hold the crypto for more than a year, then you fall into the long-term capital gains and you will pay between 0% and 20% tax.
Crypto Gambling: Is It Legal?
This is one of the most frequently asked questions. The short answer is that it depends on the particular country. For instance, in places like Australia, Canada, and the UK crypto gambling is legal. In contrast, countries like China, Egypt, and Qatar forbid the use of crypto, meaning you are not allowed to play at Bitcoin casinos.
If no state law specifically regulates crypto wagering, you can do two things. First, check if gambling is legal in general. Second, check if using crypto is legal, too. Given that both gambling and crypto are allowed, then you would probably have no problem wagering at Bitcoin casinos, either.
What Crypto Gambling Games Can I Play?
If crypto gambling is legal in your country, then perhaps your local casinos have been quick to adopt Bitcoin and its counterparts. Thus, you probably have plenty of choices when it comes to playing crypto games. However, here are a few of the most popular types of Bitcoin casino games:
- Slot machines
- Table games like roulette, blackjack, baccarat, etc.
- Sports betting & live betting
- Craps and other dice games
- Lotto, keno, and bingo
Crypto Gambling Taxes Worldwide: Full Overview
Before we proceed further, let us begin by stating that none of the major gambling markets worldwide have introduced a taxation policy directed specifically toward crypto gambling. However, most of them apply detailed guidelines and regulations on the use of crypto in general. In addition, the vast majority would tax your gambling winnings. Of course, there are quite a few exceptions. Some of them include Australia, Austria, Belgium, Bulgaria, Canada, Denmark, France, Germany, Italy, Malta, and the United Kingdom. In contrast, countries like China, India, Mexico, Spain, and the United States are very rigorous in taxing gambling proceeds. For example, the US applies a flat fee of 25% on all gambling winnings.
When it comes to taxing crypto casino winnings, most countries apply different rules. The US has a detailed frame of reference in this regard, so we will take it as an example for this blog post. As we already said, the USA treats profits from crypto as capital gains. Thus, your tax will depend on how long you can hold your cryptocurrency winnings without selling them. If you are unfamiliar with the term, capital gain is the difference in value between when you acquired your crypto and the point in time when you sold it.
The Curious Case of US Crypto Gambling Taxation
If you are a US taxpayer who has to report their crypto gambling winnings, you may experience certain confusion when the time comes to complete your paperwork. The reason is that the US taxation policies treat gambling winnings and cryptocurrencies differently.
Let us explain it simply. US residents have to pay the so-called income tax on any activity that helps them earn money directly. On the other hand, you also have the capital gains tax, which applies to profits from investments. Thus, we come to the essence of the confusion, where the US tax legislation treats gambling profits as regular income, whereas it classifies cryptocurrencies as an asset.
So, to ask it outright, how should you report your crypto gambling winnings in the US? The answer is the following: Crypto in the US is considered an asset. Winning a crypto gambling game thus brings you an asset (a reward in crypto), which is subject to the capital gains taxation policy. The exact tax amount you will pay depends entirely on the current market price of the cryptocurrency in question.
Last but not least, let us remind you when you have to report your winnings from online and land-based casinos in the US:
- When you have hit more than $1,200 (including wager) on bingo or slots
- If you have bagged $1,500+ without the stake on keno
- In case you have won $5,000 on poker without the buy-in
- If your prizes from any other game exceed $600 or are at least 300 times the stake.
However, what happens if you sell your crypto winnings for regular (fiat) currency? There has been much debate around this issue, but generally, the same principle holds. Nonetheless, the US legislation allows you certain freedom in terms of cost basis methods, so you still may end up paying less tax. In contrast, other countries like Canada, for instance, use the so-called adjusted-cost basis method, where all of your winnings are subject to the capital gains tax.
Given all said above, let us remind you that you can deduct a part of your gambling losses from your taxes. For example, if you won $5,000 but lost $2,500, you will only pay tax on the remaining $2,500.
Professional Gambling Crypto Taxation
If you are a professional gambler in the US, say a poker player, however, the rules are different. You should fill a Schedule C form to become a self-employed individual. This will allow you not only to deduct your losses but also to subtract other expenses. These may include tournament participation costs, plane tickets, hotel stay, etc. The reason is that these are considered resources needed for the performance of your professional activities.
While all of this may sound delightful, please bear in mind that turning to a professional career in gambling only to save on tax is not the best decision. The reason is that you will still have to pay the self-employment tax to provide for your Social Security and Medicare.
Are There Ways to Pay Less Tax on Crypto Gambling Winnings?
Crypto gamblers around the world have tried different ways to fully or partially evade paying taxes on their winnings. However, we do not advise you to withhold any relevant information from the tax authorities in your country.
You should remember that while cryptocurrencies are private and anonymous because they do not allow any personal information to be associated with your e-Wallet, the full transaction history can easily be tracked thanks to the nature of the blockchain. Therefore, attempts to evade taxation are risky.
Cryptocurrencies have won over the hearts of gamblers across the globe because of the many benefits they provide. The casino industry has been very flexible in adopting crypto payments. However, the crypto gambling winnings taxation policies in most countries have moved at a slower pace. Nonetheless, we expect legislations soon to open up and introduce meaningful ways to cope with this issue, as the industry grows incredibly fast.