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Jun
6th

Online Gambling and Taxes-Common Misconceptions

You’ve just realized every internet bingo player’s dream and have won a huge jackpot worth thousands. In your excitement taxes are probably the last thing on your mind but if you live in the United States you need to be aware of the penalties faced by those that do not declare their winnings. You may think “the government will never find out” but you’d better think again. The IRS is one of the most powerful government agencies and can make your life miserable so it is best to be aware of the policies regarding gambling winnings.

You may thing that “If I gamble online it’s overseas and I don’t have to pay taxes on my winnings.” This is definitely false and the US tax code clearly states that all income for American citizens is taxable. It doesn’t matter where you earned it in the US, overseas or on the internet, Uncle Sam wants his share. The US tax code defines income as “all income from whatever source derived,” This includes any income derived from gambling.

You may also think that “because internet gambling is illegal I don’t have to pay taxes.” Wrong again! The US government taxes all income no matter whether it is legal or illegal. Al Capone comes to mind. He didn’t go to prison for murder, bootlegging, running brothels, drug trafficking or any of his major crimes. He went to jail for tax evasion and spent most of his sentence in very unpleasant surroundings!

One common misconception is “Since the government has no way of tracking how much I win I won’t report it and they’ll never find out.” If you’re not audited chances are the government won’t find out but if you are and they do find out you’re in for a world of hurt. If you have any unreported income and Uncle Sam finds out you will be facing at best tax penalties and interest. If the IRS finds that you willfully evaded taxes you could go to jail and lose everything you’ve worked for over the years.

You may also think that because you didn’t receive a form W-2G from the IRS that you don’t have to pay taxes on that big internet bingo jackpot. Unfortunately all gambling income is taxable no matter whether you received forms or not.

Many players believe that they do not have to declare their winnings at offshore gambling sites until the money is repatriated to the United States. Once you have won a wager you have gambling income and it’s taxable!

The best policy when dealing with a powerful agency like the IRS is honesty. It is never a good idea to try to deceive anyone who is in a position to make your life miserable!