Winning money from crypto gambling comes with a downside — a potential tax bill.
While crypto gambling services are growing in popularity, many users still have issues collecting the information they need to pay their taxes.
In this guide, we’ll break down everything you need to know about how crypto gambling is taxed. Whether you’re a professional gambler or you’re a hobbyist, you’ll find out how to report your gambling winnings and losses on your tax return.
What is crypto gambling?
With crypto gambling, you can place bets and potentially win money without ever leaving your front door. There are hundreds of websites and protocols that allow users to place bets and win rewards in cryptocurrencies like Bitcoin and Ethereum.
Is crypto gambling illegal?
In the US, interstate and online gambling has been legalized in some (but not all) states. Before you use a crypto gambling service, you should check your state’s regulations.
In countries like Australia, the UK, and Canada, gambling is legal and is not taxable unless gambling is your primary source of income.
How are crypto gambling winnings taxed?
Crypto gambling winnings are treated as income based on its USD value at the time of receipt.
If you sell crypto that you’ve won from gambling, you will incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it.
Your tax rate on gambling income can vary from 0-37% depending on your tax bracket.
It’s important to remember that digital casinos don’t automatically withhold your taxes. It’s your responsibility to keep track of your gambling income and make sure you have enough USD to pay off any associated tax liabilities.
Is converting my cryptocurrency to USD a taxable event?
Some crypto gambling platforms require users to convert their cryptocurrency to USD This is considered a taxable disposal subject to capital gains tax.
Can I write off crypto gambling losses?
For most individuals, you can write off your crypto gambling losses — but only up to the amount that you’ve previously won. You can only use gambling losses to offset gambling income, not capital gains or other income.
If you are a professional gambler, there is no limit to how much losses you can claim on your tax return.
How do I determine my cost basis for crypto gambling?
To calculate your capital gains from selling cryptocurrency, you’ll need to know your cost basis — your original cost for acquiring your cryptocurrency.
Generally, your cost basis from your gambling rewards will be the fair market value of your crypto at the time of receipt, plus the cost of any relevant fees you paid to acquire the cryptocurrency.
How do I report crypto winnings on my tax return?
If you’re not a professional gambler, you should report your gambling income on Form 1040 Schedule 1. You can report your rewards on the row labeled ‘Gambling income’.
You can report your losses on Form 1040 Schedule A as an itemized deduction. Your losses will only reduce your tax bill if your combined itemized deductions (donations, mortgage interest, local tax, etc.) exceed your standard deduction.
Meanwhile, your capital gains from cryptocurrency and other assets should be reported on Form 8949.
If you are a professional gambler, all relevant income, losses, and expenses should be reported on Form 1040 Schedule C.
How crypto tax software can help
Trying to track your cryptocurrency taxes manually can be difficult. Luckily, there’s an easier way.
Crypto tax software like CoinLedger can help you keep track of your cryptocurrency income and capital gains. Just connect your wallets and exchanges, and let the platform take care of the rest!
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