The use of cryptocurrencies in online gambling has completely changed the way players interact with web-based casinos. Making transactions in digital currencies is not only faster, but it also involves lower fees, leaving more money to spend on playing. However, with crypto casinos being relatively new, many players wonder what their tax obligations are and how to report their winnings to authorities. In this article, we’ll uncover it all and help you ensure you stay compliant with your local regulations.
Are Crypto Winnings Taxable?
Simply put, crypto winnings are taxable as income in most US jurisdictions. While there isn’t a specific guidance on crypto winnings, the current laws regulating it are the same that apply to gambling with fiat currencies. Therefore, you should report any profits you make from crypto gambling as taxable income. This goes for whatever digital currency you’re making transactions with when playing online. So, whether you’re gambling using Bitcoin or you’re playing in the best Ethereum casinos, your winnings are taxable.
How to Calculate My Crypto Gambling Income?
As mentioned above, it’s important to report your winnings when gambling in crypto casinos in the same way when playing in traditional online casinos. Crypto is already confusing enough and with the volatility of the popular currencies, reporting your winnings can be even more challenging. Still, if you know what you’re doing, you can get done with the process quickly and go back to spinning slots or playing poker. The first thing you should do is identify the amount of cryptocurrency you’ve won. You can do this easily on the platform you’re playing on or by going through the transaction history of your crypto wallet. The next step involves establishing the fair market value (FMV) of the digital currency at the time of winning. There are plenty of cryptocurrency exchanges where you can find the exact value of all popular tokens at any given time. So, if you won two Ethereum on October 11th, 2024 when its value was $2,436.51, you would report $4,873.02 as your gambling income. In case you’ve won multiple times during the same tax year, you need to convert each winning in the same way. The same applies to all other cryptocurrencies.
How to Deduct Crypto Gambling Losses On My Tax Return?
In the US, it’s possible to deduct your gambling losses from your tax return. However, this can only be done to the extent of your gambling winnings. This applies to gambling with both fiat and digital currencies. To do this, you have to itemize your deductions on your tax return by listing your gambling losses on Schedule A of Form 1040. When doing so, you can only use your gambling losses to offset your gambling income and not any other types of income or capital gains. To make sure you calculate your losses accurately, keep a record of all your deposits or visit your transaction history on the platform or in your crypto wallet when filing your taxes.
Is Converting Crypto to USD in Casinos Taxable?
Converting cryptocurrency to USD in online casinos is taxable in the US. The reason behind this is that, from a tax perspective, converting your crypto into fiat currencies is seen as selling a capital asset, which can lead to capital gains or losses. In other words, when you’re converting your crypto into USD, you’re selling it as if you were trading crypto, which is also considered a taxable event in the US. If the value of the digital currency has increased since you’ve won it, you would have a capital gain. If its value has since dropped, you would have a capital loss. To calculate this, you need to know how much the cryptocurrency was worth when you acquired it and when you converted it to USD. Any difference between these two amounts would be your capital gain or loss.
Do I Pay Taxes on Crypto if I Don’t Cash Out?
In the US, you have to pay taxes on all your gambling winnings, regardless of whether you cash out or not. The same applies when gambling using digital currencies. In this case, you should calculate your winnings using the FMV of the crypto at the time you won it.
The Bottom Line
Tax regulations regarding your crypto casino winnings may be confusing due to the lack of specific guidance tailored to digital currencies. However, it’s important to understand that the existing rules for gambling and cryptocurrency transactions are used when filing taxes. Therefore, keep track of your winnings, the FMV of your cryptocurrencies at the time of your winnings, and any losses you’ve had during the tax year. If you face any issues with your crypto winnings when filing your taxes, consider consulting with a tax professional to ensure you report them accurately.
