Taxability of Online Gambling Winnings
The answer to the question of whether or not your online gambling winnings are taxable is: yes. Gambling winnings are taxable. It is advised that any money received through gambling be reported on Form 1040, Line 21. This is even the case for websites that are operated overseas. U.S. tax law states that gross income encapsulates any type of income received regardless of the income source. So those who bet on online gambling sites outside of the U.S. do also have to claim their winnings. For this reason online gamblers should keep very good record of gambling winnings and losses. And though online gamblers may feel beyond scrutiny from tax officials, if audited chances are good that the unreported income will be traced and in the very least the tax evading gambler will have to pay tax penalties and interest. Those who are provided with winnings payable in installments must also include both the annual payments and any amount deemed as “interest” on the unpaid gambling winning payouts on their federal tax return.
On the plus side, gambling losses are tax deductible. By itemizing tax deductions on tax Form 1040, Schedule A, bettors can deduct as much as the total amount of winnings. Those who report no online gambling winnings cannot deduct gambling losses. To successfully deduct gambling losses bettors must provide receipts, tickets, statements and other records that exhibit a totaled amount of betting winnings and losses. Gamblers, even professional gamblers, cannot deduct net gambling losses. Gambling loss deductions are not subject to the 2% AGI floor. The 2% AGI floor is the rule that certain deductions must exceed two percent of the taxpayer’s adjusted gross income in order to be accepted as a deduction.
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