Every so often it is always good to revisit some of the more mundane, but no less important, aspects of gambling for U.S. customers and perhaps nothing causes people that enjoy a wager more stress and concern than the situation regarding taxation on their gambling winnings.
Now we all know that the I.R.S don’t like to make things easy when it comes to filing your tax return! However, the good news for gamblers is that when it comes to your winnings (or losses) from gambling, the actual process of reporting them is relatively straightforward in most cases.
It is important to note at this point that you must pay tax on your gambling winnings in the United States, regardless of whether you landed your win on a trip to Las Vegas or Atlantic City, or if you hit up BetRivers Casino online and landed your win there instead.
For the I.R.S, gambling winnings are treated exactly the same regardless of whether you won online, or in a real-world casino.
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What Activities Are Classed As Gambling By The I.R.S?
If you are wondering if, for example, winnings from poker are treated any differently by the I.R.S compared to say a lottery win, or winnings from sports betting or slot games, then the good (or bad) news is that regardless of what game or activity you landed your win on, it all falls in the gambling remit with the I.R.S
Any gambling activity, including but not limited to:
- Slots Gaming
- Sports Betting
- Casino Games
Is all treated as winnings from gambling and as such you are obliged to include these winnings on your tax report.
However, there are certain thresholds in place where if your win is below the threshold, then you are still obliged to report it, but there is usually no paper or electronic trail of the win.
The thresholds have been set by the I.R.S at the following:
- $600 on horse racing (but only if the win is more than 300x your stake)
- $1,200 on slots
- $1,500 on keno
- $5,000 in a poker tournament
What this means is that any win below these thresholds and the casino or sports book is not legally obliged to report your win to the I.R.S. This doesn’t mean that your wins below the threshold amount are not liable for tax – they are. It just means that the onus is on you to report it to the I.R.S.
What Rate Are Gambling Winnings Taxed At?
The good news is that the actual tax rate for your gambling winnings is very easy to calculate. The I.R.S have set the taxation rate at 25% on gambling winnings.
So for example, if you win $10,000 in a poker tournament, then $2,500 of that will need to be paid to the I.R.S and reported to them.
However, where things differ for gamblers is from state to state as in addition to the I.R.S flat rate of 25% tax, some states also make you pay a gambling winnings state tax. This varies from state to state, and you should check what the rate is to understand what your tax liability to your home state will be.
This may sound a little bleak for gamblers in the United States, but there is some good news for punters and that is you can reduce your tax liability by including your gambling losses on your return when filing.
Why Including Your Gambling Losses Is Very Important
No gambler likes making losses when gambling, but it is a fact of life that if you gamble, you are going to lose. However, your losses can actually work to your advantage when it comes to reporting your tax liabilities to the I.R.S.
In the United States, you are allowed to deduct your gambling losses from any gambling winnings that you may be liable for tax for. You can only deduct your gambling losses from gambling winnings, not any other form of income.
So how does this affect your tax liability with the I.R.S? Let’s use a simple example of three people, each of whom won $10,000 but incurred a variety of gambling losses in doing so.
- Player 1 – Wins $10,000 and incurred $2,000 of gambling losses.
In this case, the player has a gambling profit of $8,000 for the tax period and as such they will pay 25% on $8,000 ($2,000) to the I.R.S. They may also need to pay state tax on these winnings too.
- Player 2 – Wins $10,000 and incurred $6,000 of gambling losses.
Player 2 lost more money before landing their win, so their gambling profit for taxation purposes is $4,000. This means they will owe the I.R.S $1,000 in tax (plus any state taxes payable).
- Player 3 – Wins $10,000 and incurred $12,000 of gambling losses.
In this example, despite winning $10,000 from gambling, the player has actually made a $2,000 loss on the year. As such, this wipes out their entire gambling profit for the year meaning that their gambling profit is recorded as $0 and their I.R.S tax liability for gambling is $0.
Now, you may well ask what happens to the $2,000 in cash that you lost. Is it just written off? Well, no it isn’t. As this cash came from another income source, this will be taxed by the I.R.S in the usual way.
It is important to note that these examples are for people for whom gambling is not their primary source of income, basically anybody that is not a professional gambler of any kind. For professional gamblers, as gambling is their main source of income, the tax rules for these individuals are different and they will be taxed at the regular income rate (and also their expenses and costs are calculated differently).
Finally, it is always important to play at regulated and licensed sites, such as the ones we offer at bestbetusa.com, simply because it is easy to track and trace where your gambling income came from and it shows that you earned that win legally.
Nobody enjoys filing their tax report each year, but if you follow this guide, then at least reporting your gambling profit (or not) will be relatively easy for you, or your accountant, to do.