How do I Avoid Taxes on Gambling Winnings?
Online casinos have taken the U.S. by storm in recent years. They are a great way to pass the time, whether spinning colourful slots or throwing chips at poker tables. However, many Americans aren’t prepared for what happens when they hit the jackpot.
Once the initial excitement wears off, many of us find ourselves with a significant sum of money we don’t know how to claim on our taxes. Many are confused about the process of large-scale payouts, additional fees, and the taxes that come with it.
Though you may not think the IRS cares about the money you make spinning slots at an offshore casino, these winnings are essential to your yearly taxes.
Sadly, we can’t avoid paying taxes on our wins. But we can prepare for big wins with pro tips on how, where, and when to claim casino winnings.
Covering the Basics
It’s common practice to claim all winnings from any legal online casino on your end-of-year tax forms. This includes state-level online casinos and offshore sites.
Some gamblers do not claim substantial wins at an offshore casino when online gambling is illegal in their state. It would be best to remember that the government cares about your winnings, not where they came from.
So it would be best if you always claimed your online casino winnings, no matter where you win them. This includes every aspect of online gambling, including sports betting and live casinos.
These wins will be covered under W-2G tax forms and can be calculated as ‘Other Income.’ Failure to claim your wins can bring serious legal troubles, including audits, fines, and even jail time. So make sure you keep all receipts close at hand to document all your winnings.
Calculating the Losses
Did you know losses are tax deductible, too? So long as they’re less than your overall winnings, gambling losses can be labelled as a tax write-off. You need clear evidence, including receipts, tickets, and statements, to process them.
Losses are filed on a 1040 or 1040-SR form. They are miscellaneous deductions that don’t fall under the 2% limit and are added to wins in the form’s ‘other itemized deductions’ sections. Though they cannot exceed your total winnings, it’s a helpful addition to your tax write-offs.
Tax Caps and Deductions
Every casino win has its unique regulations and deductions attached to it. However, claiming only occurs after you reach the designated minimum. This minimum is the smallest big win‘ or overall earning you must meet to be tax-eligible and changes based on the game type.
On bingo and slot machines, the minimum is €1,200 in winnings, not reduced by the wager. Keno starts at €1,500. Poker tournaments, lotteries, sweepstakes, and other table games begin at €5,000, reduced by buy-in or wager. For other games, it’s €600 if the win is 300 times the initial wager.
All wins are subject to a flat 24% withholding. Of course, this estimated rate could be higher when tax return season comes around.
Cash and Non-Cash Winnings
The rates above are applied to all cash winnings, with different rules and forms applied to non-cash winnings. Cash winnings include money earned at games or tournaments, whereas non-cash winnings could include large prizes like appliances or luxury vacations won from sweepstakes and game shows.
Non-cash winnings must be calculated and included by their fair market value when tallying up your total income.
We can’t control lady luck inside the online casino, but we can control our tax forms. Whether we win or lose, it should all be reported to the IRS during tax season. Keeping a clean and transparent record of all wins and losses will keep you gambling safely and prepare you for any complicated filing should a big win come your way.
So long as you keep clear receipts and transactions of all your withdrawals and deposits, tax season will be as easy as spinning an online slot.
Kevin Flynn is a lean start-up business consultant, PowerMBA, and Senior Financial Markets Editor at Investors Prism. He lives in Leominster, Massachusetts, with his wife…More info on Kevin Flynn