Crypto Gambling Taxes in 2022: Around the Globe
Posted On July 25, 2022
If you’re into crypto gambling or looking to get into it, you might be wondering how crypto gambling taxes work. Well, let’s find out.
Are crypto gambling winnings tax-free?
Yes, crypto gambling winnings are tax-free in most countries except in the US.
In the US, crypto gambling winnings are taxed under ordinary income taxes.
So, unless you’re from the US, you can stop reading the rest of this article. But for US taxpayers, you might wanna stick around.
In this article, you’ll find out:
- All about crypto gambling and how it works
- How does crypto gambling taxes work in the US?
- How to report your crypto gambling winnings?
What is Crypto Gambling?
If you’re reading an article on how crypto gambling taxes work, chances are that you already know all about crypto gambling and how it works.
If that’s the case, you can skip to this part to learn about its tax consequences.
But for others, here’s a quick introduction to crypto gambling and some common queries around it.
Crypto gambling is essentially the same as normal gambling. You bet on esports or casino games online. Sometimes you win. Sometimes you lose.
The only difference is instead of using fiat currency, you’re using your cryptocurrency to gamble.
It’s difficult to explain exactly how it works as it varies from platform to platform. But generally, you can directly use your cryptocurrency or token to bet on these online games.
Other platforms require you to convert your fiat currency or crypto to a particular token, preferably stablecoins. While on some platforms, you can just deposit your money, and they will take care of the rest.
Is it Illegal?
Unfortunately, there’s no clear-cut answer to the question above.
While crypto gambling is legal and regulated in some countries like the United Kingdom and Italy, most countries don’t have any explicit guidelines around it.
For example, in the US, online gambling is prohibited. But at the same time, cryptocurrency is not legal tender in the US. So, does that mean that online crypto gambling is an exception to this rule?
Long story short, as of now, crypto gambling is neither officially legal nor illegal. But if you’re an US taxpayer, you must pay crypto gambling taxes.
How Does Crypto Gambling Taxes Work?
Similar to mining or staking rewards, crypto gambling winnings are taxed under ordinary income tax rates in the US, meaning you’ll pay income taxes on the fair market value (FMV) of the crypto at the time of receiving it.
Usually, in traditional gambling, the operator would withhold 24% of the winning amount for the estimated taxes.
But that’s not the case with crypto gambling, as most of these platforms are online. They don’t deduct anything. So, you must report and pay your own taxes.
Also, you must pay capital gain taxes when your gambling winnings in the future.
How to Calculate Crypto Gambling Taxes
Calculating your crypto gambling taxes is easy.
The FMV of your crypto at the time of receiving it is the amount on which you’ll pay income tax on.
For example –
Suppose you win 2 BTC while playing an online casino game.
At the time you win, Bitcoin’s FMV is $20,000.
Therefore, you’ll report $20,000 as other income on your tax return and pay taxes on it.
How much you pay will depend on multiple factors, mainly your income tax rates, which may vary based on your income bracket.
Also, if you sell the 2 BTC in the future and realize a capital gain, you’ll be liable to capital gain taxes.
But how would you calculate its cost basis?
The FMV of the crypto at the time of receiving it will become its cost basis when you sell it.
Check out our complete guide on crypto taxes to learn more about this.
Can you Write Off Crypto Gambling Losses?
So, what happens if you lose money while gambling crypto? Can you write off the losses?
Well, loss deduction on crypto gambling is not very straightforward.
According to the IRS, you can only deduct as much as you win.
But what does that even mean?
It means the amount you deduct on your crypto gambling taxes can never exceed your winning amount.
It’s easier to understand this with an example –
Suppose you win $20,000 worth of BTC.
After a few days, you play again, but this time you lose $30,000 worth of BTC.
In this case, you can only deduct as much as your winnings, which is $20,000.
How to Report your Crypto Gambling Winnings
Firstly, you must keep records of your gambling winnings.
Even if you don’t live in the US and don’t have to pay crypto gambling taxes, you still need to keep records to calculate their cost basis when you sell them in the future.
As for how to report your winnings?
You must report your crypto gambling winnings as “other income” on your Schedule 1 Form 1040.
Usually, it’s ideal that you use a crypto tax software like Bitcoin.Tax to help keep records and prepare a tax report.