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Depending on where you live, any profits you make from crypto gaming might be subject to income or other taxes. In the US, if you live in a state where online gambling is legal, the winnings you withdraw are liable to income tax paid at your appropriate rate. Furthermore, if you withdraw the winnings as crypto, you will be subject to capital gain or loss when you convert the crypto to fiat currency.
In some cases, crypto gaming profits might be treated as capital gains, rather than income, which means players will typically pay less tax. In the UK, gambling winnings are not taxed, however, any profit or loss made from the conversion of crypto to fiat is still subject to capital gains. In other countries, especially those where crypto or online gambling laws are somewhat ambiguous, it can be difficult to determine exactly what is legal and what is illegal.
Crypto Gaming
Crypto gaming encompasses the growing number of blockchain games that exist, as well as casinos, poker, and other games offered at crypto casinos. Cryptocurrency casinos can offer substantial bonuses and many have big jackpots and prizes to attract new players. As such, there is the potential for substantial winnings. Depending on where in the world you live, these winnings might be subject to local taxes.
Crypto Taxes
In some countries, gambling winnings are treated separately from income and capital gains. Winnings might still be taxed, and all players are responsible for checking with local regulators and government groups to determine how gaming winnings are taxed and the tax they are responsible for paying.
US Crypto Gaming Tax Regulations
In the US, online casinos and poker gambling are only legal in around half a dozen states. As such, winnings are not taxed in any of the remaining states. In those states where gambling is legal, winnings are treated as income. The player must declare gambling winnings as they would any freelance work and they will be subject to tax.
Tax rates vary from 0%, for those on a low income, to 37% for those on the highest incomes. Income brackets are calculated using total income, which includes any earnings from full-time or part-time employment as well as freelance and other taxable employment. As such, players might find they lose a good portion of their winnings to income tax.
Furthermore, when the player converts crypto to fiat currency, they might be faced with additional tax. Any profit or loss is calculated by taking the converted USD value away from the equivalent fiat conversion when the winnings were withdrawn. This gives a capital gain or capital loss. If the player has profited from the holding and subsequent conversion of cryptocurrency, they will be subject to capital gains tax.
Capital gains tax can be 0%, 15%, or 20% and is determined using the individual’s total earnings. Capital loss can be used to offset other capital gains, and can potentially be used to offset some income in a tax return.
Capital gains and losses will need to be calculated for every withdrawal and conversion made and, when combined with the calculation of income from gambling and other forms of income, it can make tax calculations complicated. Players are advised to keep all records, ensure they are clear, and enlist the help of a professional tax accountant who specializes in this area, if necessary.
UK Crypto Gambling Taxes
The UK does not tax gambling profits. Whether the player wins £100 or £1 million, they are not subject to tax on those winnings unless they are considered professional gamblers. Professional gamblers pay normal income tax on their total winnings, in the same way they would on any other income earnings.
However, like in the US, profits and losses from conversions are calculated and used to determine capital gains and losses. Typically, UK players will be faced with capital gains tax of 0%, 10%, or 20% depending on their total earnings.
Australian Taxes
The laws in Australia are less clear, but it appears as though crypto gambling wins and losses, as well as currency conversions, are all treated as capital gains or losses. Capital gains tax is usually charged at 20%. Australia’s laws are somewhat difficult to determine, which means it is a good idea to use an accountant.
The Importance Of Good Record Keeping
Regardless of jurisdiction, it is common for gambling profits and any profits from crypto conversions to be taxed. As such, gamblers are advised to keep a record of their transactions. These records should include cost basis calculations, which is the value of the cryptocurrency, in local fiat currency, when the winnings are withdrawn. This figure will be used to determine any capital gains or losses made on that money.