In recent years, the rules around online gambling have become more relaxed in the United States. However, while the U.S. Supreme Court has made online betting legal at a federal level, not every state has eased legislation around online gambling. Even if you’re playing in a state that allows online gambling and sports betting, things are complicated when it comes to reporting winnings and losses. If you need some help making sense of what you owe and what’s tax deductible, read on.
Gambling Winnings Are Classed As Taxable Income
Whether you’re playing poker at an online platform like Casino777 or trying your luck with sports betting, you need to declare every cent you earn in gambling winnings. All of it is considered taxable income. It’s just the money you get back from wagers that need to be considered either. If you receive any complimentary prizes from casino and sportsbook operators, you’ll also need to declare these. In fact, just about any type of prize, you come into possession of falls into the taxable income bracket.
You’ll need to declare your gambling winnings as part of your tax return. However, if you’re lucky enough to land a bigger prize, the operator or establishment paying out the prize may decide to withhold a portion to cover federal income taxes. For example, if you pocket a prize valued at $5,000 or more, around 28% of the total will be held for tax purposes.
Declaring Your Gambling Winnings
If you win big at the track or in a casino, a W-26 form will be submitted directly to the IRS with your personal details. This information includes the total value of your prize, the date on which you earned your prize, and the type of wager involved. Furthermore, any federal taxes that were withheld at the time of payout will be itemized.
However, a W-26 will only be submitted if your winnings are above a certain threshold. This includes poker winnings totaling $5,000 or more or a slot machine prize that exceeds $1,200.
Are Gambling Losses Tax Deductible?
Unless you’re enjoying an incredible winning streak, you’ll almost certainly encounter gambling losses during a typical year. Thankfully, gambling losses are tax deductible. However, you’ll need to provide plenty of information to take advantage of this loophole. You’ll need a full record of your gambling activity, including receipts of all wagers, wins, and losses. If you only play on a single online platform, maintaining these records is fairly straightforward.
Gambling losses are only classed as tax deductible up to a certain point. In other words, you can only claim for gambling losses up to the value of any gambling winnings accrued that year.
Does it Make Sense to Place Higher Wagers?
Because of all the red tape involved with paying taxes on gambling winnings, many people think it’s smarter to make big wagers on single bets. High-stakes gambling can certainly pay off, but the odds of winning are stacked against you. What’s more, the more you earn, the more tax you’ll pay.