Online gambling has exploded in popularity over the last decade. With the convenience of playing slots, poker, and sports betting from your living room, millions of people are trying their luck to win big at Casino 777 and other online casinos. But what happens when you actually hit the jackpot? Are those big online gambling winnings taxable? Let’s take a look at how it works.
The Taxman is Coming for Your Winnings
If you win money from online gambling, those winnings are considered taxable income by the IRS and must be reported on your tax return. This applies whether you’re playing poker, slots, roulette, blackjack, sports betting – any type of wagering where you end up with more money than you started with is considered taxable income.
The caveat is that only winnings over a certain threshold must be reported. For slot machine and bingo winnings, you must claim any wins over $1,200. For sports betting, poker, and other games, the threshold is higher at $5,000. But if you’re lucky (or skilled) enough to clear those amounts, be prepared to pay taxes on your good fortune.
How Much Tax Will You Owe?
The amount of tax you’ll pay on gambling winnings depends on your total income and tax bracket for the year. Gambling income gets lumped in with your regular wages, investment income, and other earnings to determine your total taxable income.
For most people, gambling winnings will be taxed at the normal federal rate, which ranges from 10% to 37%, depending on your tax bracket. You may also owe state taxes on the income, which vary quite a bit across the country but tend to range from 0% to 13%.
To figure out exactly what you’ll owe, use your total gambling winnings as part of your gross income when calculating taxes for the year. The tax software or accountant will determine the final amount due based on your specific situation.
Withholding and Reporting Your Winnings
If you’re lucky enough to win really big – say $5,000 or more on a single bet, jackpot, or tournament – the gambling operator will likely withhold taxes before paying out your prize. This withholding is usually around 25% of the total payout.
When you file taxes, the amount withheld will count toward the total tax bill you owe the IRS on your gambling income. You’ll need to report the full amount won on your return, along with any withholding or additional gambling losses you want to deduct (more on that below).
For smaller wins, taxes won’t be withheld upfront, and it will be up to you to keep records and report the income. Make sure to keep receipts, statements, or other documentation showing your winnings. Online gambling sites should provide year-end tax statements summing up your reportable wins if you have an account with them.
Deducting Your Losses
Here’s a small bright spot if you’re a big gambler – you can deduct gambling losses to partially offset winnings. This deduction only applies to the amounts you lost, specifically from the type of gambling that produced the taxable winnings.
So, if you have $10,000 of winnings playing online Thereviewscasino, you can deduct up to $10,000 of slot machine losses. You can’t deduct losses from other kinds of gambling or expenses beyond actual wagers. Make sure to keep records to prove the losses you claim.
Also, the deduction can only be used to bring your gambling income down to zero – you can’t create a net loss to offset other types of income. But deducting losses does take some of the sting out of seeing your winnings taxed away.
When Winnings Become a Full-Time Job
For professional gamblers who essentially treat betting as their full-time job, taxes on winnings work a little differently. To qualify as a pro, you must gamble frequently and substantively with the intent of making a profit. Maintaining detailed records of income and expenses from gambling activities is also required.
Instead of paying taxes based on winnings alone, full-time gamblers can deduct associated expenses and losses to determine their actual net gambling income. Business expenses like travel costs and entrance fees can lower your taxable profit. And with gambling as your career, you may qualify to set up a Sole Proprietorship or LLC tax structure.
Going pro brings additional tax benefits, but also more record keeping requirements. Make sure to work with a tax expert to ensure you claim all allowable deductions.
The House Always Wins
While hitting a jackpot or big score can be an amazing feeling, seeing a chunk taken out by taxes can temper some of that excitement. But just like the casino always seems to get the upper hand with the games themselves, the taxman also has to get a cut when you come out ahead.
Keeping good records and deductions in mind can take some of the sting out of owing taxes on your gambling winnings. Just enjoy those wins, budget for what you’ll owe at tax time, and savor beating the odds, even if it ends up being split with Uncle Sam.
