One of the biggest misconceptions when it comes to online gambling involves tax. For many this remains a grey line. Are any winnings incurred from gambling online taxable and if so what percentage? It’s essential that players who take their online gambling seriously invest the time required to make sure they aren’t breaking any laws.
Not paying taxes on winnings which are taxable can incur a hefty fine. The thing that many online gamblers fail to realize is that just because the activity at an online is confined to the internet does not mean one is exempt from any taxes. Quite the opposite, in fact.
Of course, like with all taxes the amount of tax one has to pay varies according to the how big one’s winnings are as well as the country one is based in. Players should keep that in mind and should be sure to check the specific laws that pertain to their country of residence before gambling online.
According to the IRS official website, the laws regarding online gambling have been altered to include a wide variety of online gambling. The definition, according to the IRS, now includes any winnings a player may get from lotteries, raffles, horse races as well as from any activity at an online casino.
Players should note that the definition, according to the IRS, of winnings has also been extended and is used to refer to things such as cash winnings, cars, vacations and any other prizes.
What is particularly interesting about the IRS’ tax law regarding online gambling is that while one does have to note and pay tax on any such activity one is also eligible to deduct any loses. This is provided that a player can produce and information such as receipts or statements which prove that the player made a loss.
Most casinos, both on and offline, do document all of a player’s transaction history. Thus, in order to apply for these tax deductions all a player needs to do is print out his/her deposit and withdrawal history.
Another important thing that players need to keep in mind is that if a player’s losses exceed the player’s winnings, the player will not be eligible for any tax adjustments. Both winnings and losses will be clearly documented in any transaction history a player might hand over to the IRS. It is therefore not wise for a player to lie about either his/her winnings or losses.
Most online gamblers are under the impression that if one’s winnings are small amount, say $200; one will be exempt from having to pay any taxes. This is not the case. There is always the chance one could be audited. One would then need to explain where the extra money has come from. Keeping such information from the IRS is not recommended and could see a player ending up in some very hot water.
The smartest thing a player can do so as not to run into problems with law makers is to keep accurate and up to date records of one’s gambling transactions. This should be as comprehensive as possible and should include information such as the player’s wins and losses.
While technically all winnings should be reported, regardless of the size, not all of these winnings interest the IRS. What the IRS is really interested in are any winnings which are over $600 from lotteries or things like horse racing or dog racing. They are also interested in winnings of $1,200 or more on slot machines or bingo games. Any winnings of $1,500 or more on games like keno should also immediately be reported.
Of course, the above are just guidelines. As a general rule of thumb, a player should be sure to report any winners of a significant sum regardless of the game. Most online casinos which are legitimate and well-organized will automatically provide a player with the specific forms they need in order to pay the taxes on big winnings.
Interestingly enough, any winnings that a player gets from table games such as blackjack, craps, pai gow, baccarat as well as roulette do not require that a player completes a special tax form known as a W2-G form. Players will still, however, be required to pay taxes on these winnings.
As mentioned, tax laws on online gambling vary from country to country. It is therefore essential that a player be mindful of that and checks the specific laws of his/her country of residence. In the EU, one is not required to pay tax on any online winnings provided that the online casino where one is playing is regulated by a casino operator in the EU.
In such a case, one’s winnings regardless of size will be tax free. It is therefore advisable that a player in the EU make sure that their online casino of choice is regulated in the EU.
In Australia, taxation of gambling works differently to how it does in both the US and the EU. This is largely due to the fact that in Australia, any winnings accrued as a result of gambling online are seen to be the result of luck and are not, as such, considered income.
Gambling is also not considered to be a profession in Australia. It’s rather seen to be something people do for fun or as pastime. This is because statistically more people lose when they gamble than win. And even when players do win a significant amount, it’s still less than the total amount lost online due to online gambling.
Another significant reason for the lack of player tax on casino winnings has to do with the fact that casinos and online gambling is already taxed. It therefore is argued that it makes no sense to then tax players on their winnings. The lack of any tax on gambling winning accounts for how active Australian gamblers are. On average, most Australians spend about seven thousand dollars a year on gambling.
It is important that online gamblers know the tax laws and how they will affect their winnings before they decide to play. Failing to pay any required taxes can not only end up being very costly but can make online gambling a waste of time.
With a little bit of investigating and an understanding of the law, online players will soon be gambling away quite happily. All it takes is some practice and anyone can understand taxes and online gambling.