How Does the IRS Tax Crypto Gambling Winnings? Need advice on reporting $10K+ profits

While the IRS doesn't have specific guidance just for crypto gambling, they do have clear rules about both gambling winnings and cryptocurrency. You'll need to address both aspects. For gambling winnings: All gambling winnings are taxable income that must be reported regardless of where they were won (regulated US casino or offshore site). You'll report them on Schedule 1 as "Other Income." You can also deduct gambling losses up to the amount of your winnings as an itemized deduction on Schedule A - but only if you itemize, and you'll need documentation of those losses. For the crypto aspect: The IRS views cryptocurrency as property, not currency. When you won the crypto, you should record its fair market value in USD at the time you received it - that's your taxable amount. If you later sell/exchange the crypto and its value has changed, that's a separate taxable event. Since you mentioned it's still in your wallet, you only need to report the initial gambling winnings for now. However, keep detailed records of dates, amounts won, and the USD value at those times.

After dealing with a similar situation last year, I tried using taxr.ai (https://taxr.ai) and it was surprisingly helpful for my crypto gambling situation. Their system analyzed my wallet transactions and helped categorize what were gambling wins versus other crypto activities. Basically you upload your wallet history and it identifies patterns consistent with gambling transactions versus regular trading. It gave me a detailed report showing exactly what counts as gambling income versus what might be capital gains from just holding crypto. Saved me hours of manually reviewing each transaction and trying to figure out what was what. It also creates documentation that explains how everything was calculated, which my accountant said would be valuable if the IRS ever questions anything. Much better than my previous method of guessing and hoping for the best!

I was honestly skeptical about taxr.ai but decided to try it since I was completely lost with my crypto gambling situation. Best decision ever! The system immediately identified my transactions with offshore gambling sites (even though I never told it which platforms I used) and categorized everything correctly. The report it generated was super detailed - showed exactly which transactions were gambling winnings vs losses, calculated the USD value at the time of each win, and even organized everything by date for easy reporting. My tax preparer was impressed with how thorough the documentation was. Definitely saved me from potentially serious issues since I had completely mixed my gambling and trading activities in the same wallet.

If you're still struggling with getting the IRS to recognize your reporting method, you might want to try Claimyr (https://claimyr.com). I had a similar issue last year where I reported my crypto gambling winnings but then got a confusing notice from the IRS questioning my filing. Tried calling them for weeks and could never get through. Claimyr got me connected to an actual IRS agent in about 20 minutes when I'd been trying for days on my own. You can see how it works in their demo video: https://youtu.be/_kiP6q8DX5c The IRS agent was able to look at my account while on the phone and confirmed I had reported correctly - they just needed additional documentation, which I could have resolved immediately if I'd been able to talk to someone. Saved me from what could have been a major headache and potential penalties.

I need to apologize for my skepticism about Claimyr. After posting that comment, I decided to try it myself since I was desperate to resolve a crypto tax issue with the IRS. I had reported some gambling winnings but mixed up some forms, and the IRS sent me a notice that made no sense. Used Claimyr yesterday and got connected to an agent in about 30 minutes. The agent explained exactly what I needed to do to fix my reporting issue. If I had known about this service earlier, I could have avoided weeks of stress! For anyone dealing with crypto gambling reporting issues - being able to actually talk to someone at the IRS who can explain exactly what they're looking for is incredibly valuable. They confirmed that I needed to just report the fair market value at the time of winning, exactly as others mentioned here.

Don't forget you need to track your losses too! I had about $15k in crypto gambling winnings last year but also had about $12k in losses. You can deduct your losses against your winnings, but ONLY if you itemize deductions on Schedule A (instead of taking the standard deduction). Also keep in mind that if your overall gambling activity (including crypto gambling) shows a pattern of regular activity that looks like a business rather than a hobby, the IRS might consider you a "professional gambler" which changes how everything is reported. Whole different ballgame tax-wise.

Has anyone used a specific cryptocurrency tax software for reporting gambling specifically? I've tried a couple (Koinly, CoinTracker) but they seem more focused on trading and don't have great options for categorizing gambling transactions.

One thing no one has mentioned - if you're gambling on sites that aren't legal in the US, reporting those winnings doesn't make the gambling itself legal. You still have to pay taxes on illegal income (IRS doesn't care where money comes from, they just want their cut), but reporting it doesn't protect you from other legal issues related to using those platforms. Most people don't run into problems, but just something to be aware of since you mentioned the platform isn't regulated in the US.

Great question! I went through something similar last year with about $8K in crypto gambling profits. Here's what I learned after consulting with a tax professional: The key thing is that you need to report the fair market value in USD at the time you received each winning, not when you eventually cash out. So if you won 0.5 ETH when ETH was $2,000, that's $1,000 of taxable gambling income even if ETH later drops to $1,500. For your situation with $13.5K in profits, you'll report this as "Other Income" on Form 1040 Schedule 1. Since you haven't converted to USD yet, you're not dealing with capital gains/losses on the crypto holdings themselves - that only comes into play when you sell. One practical tip: start documenting everything now while it's still relatively fresh in your memory. Create a spreadsheet with dates, amounts won in crypto, and the USD value at that time. You can use sites like CoinGecko or CoinMarketCap to get historical pricing data. The IRS expects you to use "reasonable methods" to determine fair market value, so using widely-accepted pricing sources should be fine. Also remember that if you have gambling losses, you can potentially deduct them against your winnings if you itemize deductions, but only up to the amount of your winnings.