Crypto gambling and casinos have seen a huge increase in popularity in 2023, while there have not been many updates from a regulatory standpoint concerning taxes. From calculating your crypto gambling income to understanding how to declare your wins and losses, we will walk you through the process to ensure you stay tax-compliant.
Key takeaways
- Winnings from cryptocurrency gambling are considered taxable income in most jurisdictions, including the U.S.
- Calculating crypto gambling income involves identifying winnings and establishing their fair market value at winning time.
- Converting cryptocurrency to USD within a casino platform is a taxable event, often resulting in capital gains or losses.
- Deducting crypto gambling losses depends on local tax laws, but can often offset only gambling winnings and not other income types.
Is crypto gambling taxed?
Yes, winnings from cryptocurrency gambling are taxed as income in most jurisdictions including the United States. Although no specific tax guidance on crypto gambling exists, the current tax laws for gambling with traditional fiat currencies can be applied to gambling with cryptocurrencies.
Any profits from crypto gambling should be reported as taxable income since all gambling winnings are considered income for tax purposes and must be reported on your tax return.
How to calculate crypto gambling income
Calculating cryptocurrency gambling income can be tricky due to the volatility of cryptocurrencies, but it’s crucial for accurate tax reporting. We can break down calculating income from crypto gambling into three steps:
- Identify the amount of cryptocurrency won
- Establish the fair market value (FMV) at the time of winning
- Summarize the values to find your total gambling income
The first step is to identify the amount of cryptocurrency you won from gambling. This can usually be found in the transaction history of your crypto wallet or on the gambling platform itself.
Next, you must establish the fair market value (FMV) of the cryptocurrency at the exact time of the gambling win. This can be found on various reliable cryptocurrency exchanges, such as Binance, Coinbase, or Kraken, or market sites such as CoinGecko. Remember that it’s the FMV you must report as your gambling income, not the cryptocurrency amount you have won.
For instance, if you won 0.5 Bitcoin when one Bitcoin was worth $30,000, you would report $15,000 as your gambling income. If you made several winnings during the tax year, you must convert each winning into your local currency before summarizing all values to get the total taxable income from all gambling winnings.
Also, remember to keep a thorough record of all your transactions, including dates, amounts, and the FMV of the cryptocurrency at the time of the transaction. This is necessary for accurate tax reporting and in case you get audited.
How to calculate cost basis of gambling transactions
The cost basis for gambling transactions is essentially the original value of the cryptocurrency for tax purposes, which is usually the fair market value of the crypto asset at the time you acquired it plus any related fees.
If you made a gambling loss, considered a disposal, you can now calculate the resulting capital gains or losses by subtracting the cost basis from the proceeds (FMV) when the gambling loss event occurred.
On the other hand, if you made a winning, you have not realized any capital gains since no cryptocurrency has been disposed of. However, it’s important to remember that the coins received will take on a cost basis equal to the FMV which you need to consider when the coins are sold in the future.
Is converting crypto to USD taxable on casinos?
Converting cryptocurrency to USD (or any other fiat currency) within a casino platform can have tax implications and is generally considered a taxable event. This is because, from a tax perspective, converting cryptocurrency to fiat currency is treated as selling a capital asset, which may result in capital gains or losses.
Here’s how it works: if you are gambling with cryptocurrency and then convert your winnings into USD, you are essentially selling your cryptocurrency. If the value of the cryptocurrency has increased since the time you acquired it (i.e., when you made the winning), you would have a capital gain. Conversely, if the value of the cryptocurrency has decreased, you would have a capital loss.
To calculate this, you need to know the cost basis (the value of the cryptocurrency when you acquired it) and the fair market value of the cryptocurrency at the time you converted it to USD. The difference between these two amounts is your capital gain or loss.
How to declare gambling income taxes
Gambling income, including crypto gambling winnings, should be reported on Schedule 1 (Form 1040) on line 8b “Gambling” for U.S. taxpayers. This applies if the IRS does not consider you a professional gambler.
If you made losses from gambling on a crypto casino, you can report such losses on Schedule A (Form 1040) for itemized deductions.
For countries other than the United States, income from crypto gambling sites should usually be reported similarly to ordinary income for tax purposes. This is because in most jurisdictions, although there are exceptions, gambling winnings are taxed as ordinary income and must be declared in your tax return.
Can I deduct crypto gambling losses on my tax return?
The ability to deduct cryptocurrency gambling losses on your tax return largely depends on the tax laws of your jurisdiction. In many places, including the United States, gambling losses can be deducted, but only to the extent of gambling winnings. This applies whether you are gambling with fiat currency or cryptocurrency.
If you are a U.S. taxpayer and want to claim this deduction, you must itemize your deductions on your tax return by reporting your gambling losses on Schedule A of Form 1040. Gambling losses can only be used to offset gambling income and not other income or capital gains.
To accurately calculate your losses, you should maintain a record of all your crypto gambling transactions. This includes the date, the amount and type of cryptocurrency you have betted, the fair market value of the cryptocurrency at the time of the transaction, and the amount of your loss.
How can Coinpanda help?
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