It is not fun to think about paying taxes when you are enjoying your winnings from playing online Keno. Unfortunately, the IRS feels differently about this subject. The short answer to this question is, yes, taxes must be paid. Just because an online casino is overseas, or it does not issue its players tax paperwork does not mean you are exempt from paying taxes on any winnings you may have. According to tax code, gamblers are required to keep logs of any winnings, and additionally any losses. Winnings are to be classified as “other” income, and losses are considered an itemized deduction. Online winnings are subject to the same laws as are their brick and mortar counterparts. In the eyes of the law, there is no difference between the two.
Another important consideration is that besides federal taxes, depending on the state you live in you may be subject to state and or city income taxes. Because the laws concerning gambling income differ greatly between cities and states, it is beneficial to consult with local tax professionals to ensure that you are keeping accurate records.
Additionally, depending on your gambling situation you many be required to make estimated tax payments to the IRS on a quarterly basis. If you have a “day job” and are also successful with your gambling pursuits, you will need to file a 1040-ES form. It is possible to either make estimated payments on a quarterly basis, or to increase the withholding from your traditional job enough to cover the additional requirements. Failing to make these additional payments can result in a underpayment of taxes penalty.
Some gamblers classify themselves as professional gamblers, however the requirements are specific and do not apply to many. To be considered a professional, you must pursue gambling as your full time employment. The IRS is very strict about the term “full time” and has in the past gone after gamblers who classify themselves as full time yet maintain a business or other form of income. Before considering the classification of professional gambler, a tax professional should be consulted in order to ensure that all considerations are taken into account.
While it may be tempting to avoid taxes altogether, that is not a good idea. You may think that because the casino you utilize is overseas, or the state you are in does not require income taxes you are exempt. You also may assume that because gambling is illegal in your area it is best to avoid the IRS. While this is all tempting and it is not fun to think about losing some of your winnings to taxes, tax evasion is a crime that comes with strict and unpleasant consequences.
Your situation will be different from others, and fights with the IRS can be costly and complicated. The best course of action is to play it safe and consult with a tax professional. A professional will be well versed in all local, state, or national laws concerning gambling taxes, or will have access to official laws and documents. A professional will also be able to view your case specifically, and determine what, how, and to whom tax payments should be made.