Cryptocurrencies have revolutionized the way online transactions can function. That’s because crypto transactions are borderless, available to everyone in the world, and decentralized.
Thanks to cryptos, online gamblers have got a fantastic avenue to play their favorite games without having to wait for slow wire transfers. What’s more, they can enjoy complete privacy since they no longer have to share their banking information online to be able to play.
However, privacy and online anonymity are not the reason not to report your winnings if your country of residence has laws on crypto gambling taxes.
Is It Legal to Gamble Online Using Cryptocurrency?
As of today, there aren’t any clear answers to some questions regarding the use of cryptocurrency for gambling in a lot of regions. Nonetheless, there are some fundamental aspects that you need to understand about online crypto betting.
They include:
- There are no specific laws regulating crypto gambling because most cryptocurrencies are neither officially allowed nor explicitly prohibited.
- Attitude to the use of cryptocurrency varies by country. Some countries are optimistic about the use of various cryptocurrencies and are seen as the future of the monetary denomination. Other countries don’t allow the use of cryptocurrencies at all.
- There are a few gambling jurisdictions that do offer licenses to casinos that accept cryptocurrencies. These include the government of Curacao and the renowned United Kingdom Gambling Commission. These legislative bodies can now accept the responsibility of controlling gambling operations in crypto casinos. As long as an online casino is following the rules and regulations of the chosen jurisdiction, it is operating legally.
Taxing Cryptocurrencies
However, most cryptocurrency tax regulations are relatively new, and some of them consider crypto as digital assets subject to capital gains tax. Some state jurisdictions mandate that every transaction with cryptocurrencies is taxable.
Bitcoin and other cryptocurrencies are not considered legal tender in most countries. (The only country that has adopted Bitcoin as legal tender is El Salvador.) This effectively means that crypto isn’t considered money but rather property. If you are selling or buying property, you might profit or suffer a loss on your initial investment. How much tax, or if you need to pay it at all, will vary depending on how profitable your transactions were.
Cryptocurrency transactions are completely or semi-anonymous. Therefore, the argument is that you can hide profits in cryptocurrencies from the government. However, this could lead to massive fines and even jail time as tax evasion is a serious felony in any country.
In the United States, the IRS treats cryptocurrency gains as any other capital gains. If you hold a certain amount of crypto for less than a year, any short-term capital gains are subject to regular tax rates of up to 37%, depending on your income. The cryptocurrency tax rate in the long term is much more affordable. If you hold your crypto for more than a year, you are subject to a long-term capital gains tax at lower rates between 0% and 20%.
Remember, the capital gains tax applies only to the profits you made. For example, if you invested $4,000 in Ethereum, and after one year, you sell it for $10,000, any taxes you need to pay are on the $6,000 profit.
Since each country regulates cryptocurrencies differently, it may be helpful to discuss crypto taxation with a tax accountant to ensure compliance with local laws
Will my gambling winnings be taxed?
Crypto gambling is taxed in exactly the same way as any other form of gambling. So, if you don’t have to pay taxes on your gambling winnings, the same rule applies to your crypto gambling winnings. Most countries don’t tax your gambling winnings, including for example:
- Australia
- Áustria
- Belgium
- Bulgaria
- Canada
- Denmark
- France
- Germany
- Ireland
- Italy
- Malta
- Sweden
- The United Kingdom
There are a few caveats to this rule, such as if you’re gambling as part of a business. On the other hand, here are some examples of countries that do tax gambling winning:
- China
- Ethiopia
- India
- Mexico
- Spain
- United States of America
- Zimbabwe
- Brazil
Is crypto gambling taxed in the United States?
When received, crypto gambling winnings are taxed as ordinary income at a federal and state level; your tax rates depend on your gross income, but range from 0 to 37%. If you have gambling winnings from a U.S.-based operation, typically, a flat 24% will be withheld by the payer; these are estimated taxes, and you may owe more or less depending on your personal circumstances.
However, crypto casinos and betting sites will not make this automatic deduction for you. You need to report gambling winnings as “other income” on your Schedule 1 Form 1040.
Additionally, when you sell or trade your crypto gambling winnings for fiat or another coin, you will report and pay crypto capital gains taxes on any increase in its value.
How do I calculate the cost basis of crypto gambling winnings?
When you sell or trade crypto gambling winnings, you are realizing a capital gain or loss on the difference in the asset’s value when you acquired it versus when you disposed of it. The capital gain (or loss) you report on your taxes is equal to your total proceeds minus your cost basis. Your cost basis is the price you acquired the asset for, plus any applicable fees.
Can I write off crypto gambling losses?
Gambling losses are indeed tax deductible, but only to the extent of your winnings and require you to report all the money you win as taxable income on your return. The deduction is only available if you itemize your deductions. If you claim the standard deduction, then you can’t reduce your tax by your gambling losses.
How do I calculate crypto gambling income?
Bitcoin gambling income is taxed at its fair market value when it is earned. For example, if you won .25 BTC from a sports bet when BTC was valued at $30,000, you would report $7,500 of taxable income.
Conclusion
As you can see, when it comes to gambling with crypto, the rules are pretty straightforward. Gambling tax laws mean that in most countries you don’t need to pay any taxes on your winnings, but if you’re winning in crypto, you could have capital gains to pay.
My best advice is that if you’re still unsure as to whether you need to pay taxes, declare any crypto gambling-related income or simply have any crypto gambling tax-related questions, you should reach out to a qualified accountant. It could save you a lot of money and trouble down the line.
