Springtime brings more than warmer weather and beautiful flowers. For those in the United States, it also heralds the arrival of the Tax Man. Those who play blackjack online may not realize that they are responsible for paying taxes on their gambling winnings. Most people may not play enough, or win enough, to think about paying blackjack taxes, but at Counting Edge we want every one to be a big winner. Here are a few things to know about online blackjack and taxes.
Legalized Online Blackjack and Taxes
There was a time not so long ago when online blackjack was not legal in the United States. This is beginning to change, however. Residents of Nevada and New Jersey are now able to create accounts with online casinos and wager on slots and table games. The important thing to know is that the management of legal online casinos in the United States is carried out in the same manner that it is for brick-and-mortar casinos.
What this means is that the casino is bound to report its financial dealings to the Internal Revenue Service. Like any business, the casino must file its own taxes. Because of this, records are kept. This includes records on paying out large sums of money.
For example, if you were fortunate enough to hit a large slot machine jackpot the casino will report that win to the IRS. In most cases, a certain amount of tax will be withheld on the spot. The casino will then let the IRS know that you have won the money. There is no way to hide the winnings when the jackpot is very large.
Blackjack winnings are a little easier to disguise, although we don’t recommend it. Technically, wins over $1,200 or so will be reported. The live casino has a harder time determining how much you have won at blackjack because it takes a lot of work to keep track of players. The casino would have to know how much money you bought in with, how much you cashed out, and the difference. They just don’t have the manpower to track all of this live.
Things are different online. The online casino can pull up custom reports with a few clicks on the computer. This means that have a complete snapshot of how much you have deposited, the games you have played, and the amount of money you have cashed out. Everything is documented.
If you happen to live outside the U.S. or play in an online casino that is located outside of the U.S., it may be easier to hide gambling profits. Again, we do not recommend doing so. The suggestions in this article are given for the benefit of players in the United States who play legally.
Misconceptions About Online Gambling Taxes
People tend to have misconceptions about online gambling and taxes. They have developed these misconceptions based on the ill-informed information passed on by others. Everyone seems to have their own opinion about gambling taxes, and those opinions do not necessarily reflect the law. Here are a few wrong opinions.
If I gamble in a casino that is based overseas, I do not have to pay taxes. Nothing could be farther from the truth. The tax code of the United States requires all individuals to pay taxes on all income. This means income earned in the United States, abroad, or online. Gross income is defined by the tax code as “all income from whatever source derived.”
Gambling online is illegal so I don’t have to pay taxes. This is also false. Online gambling is now legal in some U.S. jurisdictions. Also, think about this. The legendary gangster Al Capone was ultimately sent to prison for evading taxes on his illegal income. The IRS doesn’t care. Technically, the could prosecute a drug dealer for failing to pay taxes on a dime bag.
The government has no way of knowing what my winnings are, so I am not paying taxes. Granted, profits earned from live casino play can be very hard to track. But remember what we said about online play. There is a record of anything. Additionally, if you ever get audited by the IRS the subject of gambling winnings can come into play.
I didn’t receive a W2-G form and don’t have to report my blackjack winnings. You must report winnings from blackjack or any other gambling game whether you received a form or not. All gambling income is taxable. Period.
My blackjack wins can be netted. This is true for some players. To net your online blackjack winnings, however, you must be a professional gambler. All others list their gambling winnings as Other Income and may deduct losses as an itemized deduction.
The main point of all these misconceptions is for you to remember that ALL income must be reported. If you fail to do so, the IRS can levy penalties and interest against you. In extreme cases, you could be charged with tax evasion just like Al Capone. In the United States, this is a very serious crime and could lead to your imprisonment.
Online Blackjack Record Keeping
The first thing to remember about keeping your taxes from online blackjack winnings in order is to keep good records. This is especially true if you are one of those individuals who wants to make the transition to a full-time professional gambler.
The recreational blackjack player can be defined as one who occasionally plays the game as a hobby and does not consider the activity to be their primary source of income. Many Counting Edge readers are recreational players. They open up an account online, bet a few dollars here and there, and enjoy themselves. Few of them have any real expectation of getting rich from playing blackjack.
These players are required by the United States tax code to keep a record of their wins and losses by session. A session could be defined as each time you log in to play the game at an online casino. So, let’s say that you log in to play one morning at 10 and begin with a starting bankroll of $100. A noon you end the session with $80. This means you have a $20 loss.
The best way to track these figures is to buy a spiral notebook and keep it beside the computer where you usually play the game. Get in the habit of writing down the time, the casino where you played, the amount you started with, and the amount you ended with. Those are the main things you need to record. You can also add notes if you wish. If you play at a casino with a live dealer, make a note of the dealer’s name if you can. Notes are helpful if you ever get audited by the IRS. They lend more credibility to your record keeping.
At tax time you will add up all of your winning sessions and all of your losing sessions. Let’s say that you had a total of $5,000 in winning sessions. Your losing sessions added up to $3,500. This means that you had a profit for the year of $1,500. But, as a non-professional player it is not permitted for you to net the numbers. Instead, you must enter $5,000 as Other Income which can be found on line 21 of the U.S. tax form. The losses must be claimed as an itemized deduction on Schedule A. Your tax preparer has access to all of the necessary forms you will require.
If you do not itemize deductions because you do not have enough of them throughout the year, this means that you will not be able to deduct gambling losses. You should also be aware that your Adjusted Gross Income will increase as a result of keeping blackjack records. It is also possible that gambling losses can initiate something known as the Alternative Minimum Tax.
So, with all this being said, should you be worried about reporting gambling winnings if you are just a recreational player. For the record, Counting Edge advises you to pay your taxes. With that being said, those playing in a live casino might be able to conceal small winnings. Just know that if you play online or if you win a very large jackpot, there is a record of that win somewhere. This record could come back to haunt you if you do not file taxes.
Professional gamblers use a different procedure when it comes to filing taxes. For starters, their wins and losses are claimed on a separate form. This form is called Schedule C. As far as the IRS is concerned, gambling is a business for these individuals. It is not a leisure activity.
Before you decide to declare yourself a professional gambler in the hopes that doing so will save you at tax time, know that the IRS has an established reputation of challenging this designation. Some individuals have fought the IRS all the way to the Supreme Court. In 1987, Robert Groetzinger took his case to the Supreme Court and won. The court upheld that professional gambling is indeed a real endeavor. Nevertheless, the IRS doesn’t like it. If you claim to be a professional, prepare yourself for audits and other measures designed to discourage your gambling pursuits.
Before you have to worry about paying taxes on gambling winnings, you have to play! You can play blackjack online right now at one of our recommended online casinos. It only takes a few minutes to sign up and you can play blackjack from your computer, phone, or tablet.