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Social Casino Tax Qsatta linguestions? We Asked the Professionals
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Table Of Contents
- Are Social Casino Winnings/Losses Taxed?
- Understanding Tax Forms: 1099 vs. W-2G
- The Importance of Record Keeping
- Amateur vs. Professional Gambler: What’s Your Status?
- 5 Things to Remember About Social Casino Taxes: Expert Advice
Social casinos are a hot topic in the US, attracting millions of players who enjoy casino-style games without the traditional stakes of real-money gambling.
But with tax season in full swing, you might be wondering—where do social casinos stand when it comes to your tax return?
Unlike traditional online casinos, social casinos operate on a model where players purchase virtual currency for entertainment purposes rather than wagering real money with the chance to cash out.
Since these platforms aren't legally classified as gambling, does that mean they’re completely tax-free?And if you’ve spent money on in-game purchases or won sweepstakes prizes, what does that mean for your IRS filing?
Well, this author was a bit confused and decided to get to the bottom of it.
To clear things up, we reached out to Gary Kondler of Kondler & Associates, a top poker and gambling accounting firm, to break down what you need to know about social casinos and their potential tax implications.
Are Social Casino Winnings/Losses Taxed?
If you’ve been winning money from social casinos, you might be wondering: Is that income taxable?
Tax expert Gary Kondler offers some insight on this. He suggests that the IRS doesn’t seem to draw a line between winnings from social casinos and those from traditional gambling. “I tend to look at social casinos in the same light as regular gambling income,” Gary shares, reflecting his perspective.
I tend to look at social casinos in the same light as regular gambling income
While social casinos operate differently from traditional casinos, the IRS generally treats all gambling winnings the same—whether they come from a digital platform or a physical casino. This could mean that winnings from social casinos need to be reported as taxable income.
Understanding Tax Forms: 1099 vs. W-2G
One key difference between social casinos and traditional casinos is the tax forms they issue. Traditional casinos typically send out a W-2G form when a player hits a certain threshold of winnings. In contrast, social casinos usually issue a 1099 form instead.
Gary explains, "Because they're social casinos operating without a gambling license in the U.S., they issue a 1099 instead of a W-2G."
It’s also important to note that some social casinos report the total amount of money withdrawn from the platform, rather than just the net profit, which can create discrepancies in how much tax you owe.
"I’ve noticed that social casinos issue 1099s based on the full withdrawal amount, not just the profit," Gary adds. This means that if part of your withdrawal came from your initial deposit, the reported figure could be much higher than your actual profit. Keeping track of these details is crucial to avoid overpaying taxes.
The Importance of Record Keeping
When it comes to gambling income, accurate record-keeping is essential. Gary stresses that having detailed documentation is your best defense, especially if you're ever audited. One of the best ways to keep track of your gambling activity is through spreadsheets.
Contrary to popular belief "The IRS will accept an Excel spreadsheet that ties to your wins and losses," Gary advises. "It’s a simple way to ensure you have an accurate record."
But it’s not just about having a list of wins and losses—Gary also emphasizes that confirming your actual gambling profit is crucial. "I always ask my clients what their true gambling profit was, because tax forms aren’t always accurate," he says.
By keeping your own detailed records, you can be sure that you’re reporting the right numbers and avoid relying on potentially misleading forms.
Key features of social casinos:
- Virtual Currency – Play with virtual coins instead of real money, sometimes with prize opportunities.
- Free-to-Play – Enjoy free games with optional in-app purchases for extra perks.
- Social Features – Compete on leaderboards, join tournaments, and interact with others.
Amateur vs. Professional Gambler: What’s Your Status?
The IRS distinguishes between amateur and professional gamblers, and how you report your income depends on which category you fall into.
Gary explains that being classified as a professional gambler isn't just about making money—it’s also about the time and effort you dedicate to gambling as a profit-driven activity.
Amateur gamblers typically report their winnings as income and can only deduct losses up to the amount of their winnings. In contrast, professional gamblers can deduct expenses related to their gambling activities but face additional taxes. The IRS requires professional gamblers to file a Schedule C, which exposes them to self-employment taxes, in addition to federal and state taxes.
"The downside of filing a Schedule C is not only is your income subject to federal and state taxes, but you also pay an additional 15.3% self-employment tax for Social Security and Medicare," Gary cautions.
This classification and its tax implications can significantly impact your bottom line, so it’s essential to understand which category you fall into to avoid costly mistakes. The complexity of this distinction is one reason why professional advice is invaluable when it comes to handling gambling and social casino income.
5 Things to Remember About Social Casino Taxes: Expert Advice
Social casino winnings may not come from traditional gambling, but the IRS may consider them taxable income. Here’s what you need to know to stay compliant.
Gather All Your Tax Forms
Social casinos don’t issue W-2Gs like traditional casinos. Instead, they typically provide 1099 forms, often based on the total amount withdrawn—not net profits.
"Because they're social casinos, they may issue a 1099 instead of a W-2G," Gary explains.
Check Your IRS Wage and Income Transcript
If a social casino reports your withdrawals to the IRS, you need to ensure your tax return reflects it correctly.
"I urge all my clients to download their IRS Wage and Income Transcript in May and check it against their tax return," Gary advises.
Keep Detailed Records of Deposits and Withdrawals
Since some social casinos report gross withdrawals, rather than profits, tracking your actual winnings and losses is essential.
"I've noticed social casinos issuing 1099s based on the full withdrawal amount, not net profit," Gary warns.
An Excel spreadsheet documenting deposits, winnings, and losses can serve as crucial evidence if audited.
Be Aware of 1099-K Forms from Payment Platforms
If you cash out through services like PayPal, Venmo, or bank transfers, you may also receive a 1099-K, which could complicate your tax situation.
"In some cases, PayPal may issue a 1099-K, which could mean even more income reported to the IRS," Gary says.
Question Everything and Seek Professional Advice
Social casino taxation is still evolving, and mistakes happen. Double-check tax forms and consult an expert if something doesn’t seem right.
"That’s why I always say question everything when you get your documents back," Gary emphasizes.
By staying informed and keeping good records, you can avoid unexpected tax liabilities and handle social casino winnings correctly.
With sweepstakes and social casinos set to dominate the iGaming landscape for the foreseeable future, staying informed about their legal status is essential. Track the legality of social casinos by state with our Sweepstakes Casino Map and stay ahead of the latest developments.
This article is for informational purposes only and does not constitute legal, financial, or tax advice. PokerNewsdoes not offer tax advice, and readers should consult a qualified tax professional regarding their individual circumstances—with thanks to Gary Kondler for his expert insights.
Disclaimer: any promotions presented on this page were correct and available at the time of writing. Promotions can change regularly. We encourage all users to check the promotion displayed matches the most current promotion available by clicking through to the operator welcome page. Please read the terms and conditions carefully before you accept any promotional welcome offer.
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