Can a US citizen claim gambling losses on taxes for online gambling sites that aren't technically allowed?

So I've been in this weird situation lately. Last year I started gambling on some offshore sites (because they had better payouts). I won some decent money at first but then hit a real bad streak. I'm down about $4,700 overall for the year. Now that tax season is approaching, I'm wondering if I can deduct these losses against the wins I had. I know normally gambling losses can offset gambling income on Schedule A, but since these sites operate in a gray area legally in the US, I'm not sure if I can claim these losses without getting into trouble. The sites did send me some kind of earnings statement, but it's not an official W-2G or anything like that. I'm planning to report the winnings because I don't want problems with the IRS, but can I also claim the losses? Has anyone dealt with this before? Trying to do the right thing tax-wise without creating problems for myself.

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18 comments

Paolo Esposito

•8M

This is actually a relatively common question. The IRS cares about your income, not necessarily how you earned it. Even illegal income must be reported on taxes (think about drug dealers who get caught for tax evasion, not just drug dealing). For gambling specifically, you're required to report all gambling winnings as income, regardless of whether the gambling activity was legal or not. And yes, you can deduct your gambling losses, but only up to the amount of your gambling winnings, and only if you itemize deductions on Schedule A. The tricky part isn't whether you can legally deduct the losses - you can. The challenge is documentation. You need to keep good records of your gambling activity - dates, types of gambling, amounts won/lost, location, etc. Without proper documentation, the IRS could disallow your deduction if you're audited.

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Paolo Esposito

•8M

The IRS generally doesn't share your tax information with other agencies for regulatory purposes. Their main concern is collecting the proper amount of tax, not enforcing gambling regulations. That said, there's a difference between "not legally available in your state" versus outright illegal gambling. Many offshore sites operate in a gray area - they're licensed somewhere, just not in the US. This is different from, say, an underground poker game run by organized crime.

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Oliver Weber

•8M

I had a similar situation last year and found a great solution with taxr.ai (https://taxr.ai). I was worried about properly documenting my online gambling activities from various sites, some in gray areas legally. Their software analyzed all my gambling transaction data and organized it properly for tax reporting. What's really helpful is that it categorizes everything correctly so you can confidently report both winnings and losses without raising red flags. It also generates the proper documentation you'd need if you ever got audited. I was seriously stressing about this exact situation until I found them.

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Oliver Weber

•8M

They absolutely understand the difference between offshore and regulated sites - that's actually one of their specialties. The system categorizes each site appropriately and treats the income correctly based on source. For sites that don't provide proper tax documentation, that's exactly where they shine. You just upload whatever transaction history or records you have, and their system formats everything into proper documentation that satisfies IRS requirements. They basically turn your informal records into audit-ready documentation.

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Natasha Kuznetsova

•8M

Just wanted to update after trying taxr.ai that someone suggested here. It was exactly what I needed for my situation with mixed gambling from legit US sites and some offshore ones. The document analyzer actually recognized my offshore site's transaction format and categorized everything properly. I was especially impressed that it separated my reportable winnings from my losses and created a proper gambling log that would stand up to scrutiny if I ever got audited. The peace of mind was worth it alone, but it also found some losses I hadn't properly tracked that I could legally deduct. So I'm actually getting a slightly bigger refund now!

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Javier Morales

•8M

If you're having trouble getting proper documentation from these offshore gambling sites, another major issue you might face is getting answers from the IRS if you have questions. I spent THREE WEEKS trying to get someone on the phone at the IRS about a similar situation last year. Finally I found Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in under 45 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent was able to tell me exactly how to report my foreign gambling winnings and losses, and what documentation I needed to keep in case of an audit. The IRS actually has specific guidelines on this that most tax preparers don't even know about, so getting official guidance directly from them saved me a lot of stress.

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Javier Morales

•8M

Yes, that's exactly what it does. The system basically automates the calling process and navigates the IRS phone tree for you. Instead of you having to sit on hold for hours, their system does it and then calls you when it gets a live agent on the line. It's definitely not a scam. They don't claim to have special access to the IRS - they just solve the problem of having to manually redial and wait on hold. The technology basically monitors the hold line and then connects you when it reaches a human. I was skeptical too but it literally saved me hours of frustration.

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Malik Thompson

•8M

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway because I was desperate to ask about some crypto gambling reporting questions. The service actually did exactly what it claimed - got me through to an IRS agent in about 35 minutes while I just went about my day. When my phone rang, I was connected to an actual helpful IRS representative who answered all my questions about reporting gambling from non-US based sites. The agent confirmed I could deduct losses against winnings even from offshore sites, but emphasized keeping detailed records. This was way more efficient than my previous attempts where I wasted entire afternoons on hold.

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Isabella Ferreira

•8M

That's correct. If your total itemized deductions (mortgage interest, state/local taxes, charitable donations, and gambling losses, etc.) don't exceed the standard deduction ($13,850 for single filers in 2023), then there's no tax benefit to claiming the gambling losses. This is why some regular gamblers make sure to track both their winnings AND losses carefully. The winnings get added to your income regardless, but the losses can only offset that if you itemize.

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