How are Bitcoin taxes handled when directly transferring to an online casino?

I think I really messed up this year with my crypto gambling. I spent somewhere between $6,500-$8,700 on Bitcoin over a few months, but I never actually kept the Bitcoin in my personal wallet. Each time I bought it, I immediately transferred it to this offshore online casino site I was using. During my admittedly reckless gambling spree, I managed to win about $3,100 at various points, but I almost always just kept gambling with those winnings until they were gone. Maybe once or twice I cashed out a small amount, but mostly I just kept playing until I lost everything. My question is about Bitcoin taxes - do I have to pay taxes on any of this? I'm confused because I never really "held" the Bitcoin as an investment, and all the money is completely gone now anyway. Do I still have tax obligations for cryptocurrency that just passed through to gambling? And what about the temporary winnings that I ended up losing anyway?

0 coins

18 comments

Freya Nielsen

•8M

This is actually a complex tax situation with a few different elements to consider: First, when you purchase Bitcoin and then dispose of it (by sending it to the casino), that's technically a taxable event - even if you only held it for minutes. However, if you transferred it immediately at the same value, there wouldn't be any gain or loss to report. For the gambling aspect, gambling losses can only be deducted against gambling winnings, and only if you itemize deductions on Schedule A. You can't deduct losses beyond your total winnings. You should report your total winnings as income, regardless of whether you ultimately lost that money later. The tricky part is documentation. An offshore online casino likely won't send you any tax forms, so you'd need your own records of all transactions - deposits, withdrawals, and session wins/losses. Without good records, it's very difficult to properly report this.

0 coins

Freya Nielsen

•8M

You would report cryptocurrency transactions on Form 8949 and then summarize them on Schedule D. If you bought Bitcoin and immediately transferred it with no change in value, you'd technically need to report it, but the gain/loss would be zero. For gambling, you'd report winnings as "Other Income" on Schedule 1 of your 1040. If you itemize deductions, you can report gambling losses (up to the amount of winnings) on Schedule A. But remember, most people take the standard deduction, which might be more beneficial than itemizing just for gambling losses.

0 coins

Chloe Harris

•8M

For the transaction history, that's exactly what I had - a jumble of confirmation emails and screenshots. I just uploaded everything I had, and their system sorted through it all. It was pretty impressive how it could identify what was what, even from just screenshots. With regular tax software, I found they could handle simple crypto trades fine, but they really struggled with the gambling element combined with crypto. The specialized knowledge about how to categorize these transactions (gambling loss vs crypto disposal) made a huge difference in my case. Regular tax software just wasn't built for these edge cases.

0 coins

Diego Vargas

•8M

I just wanted to follow up on my taxr.ai question. I ended up trying them out with my mess of crypto gambling records, and it actually worked really well. I was honestly surprised because my documentation was terrible - mostly just screenshots from my phone and some confirmation emails. Their system managed to piece together my purchase history, transfers to the gambling site, and even helped estimate my winnings pattern. The report they generated showed I actually had minimal tax liability since I could offset my few withdrawals with documented losses. Definitely worth it for the peace of mind knowing I'm reporting this correctly.

0 coins

Anastasia Popov

•8M

If you're still trying to figure out how to properly report this and need to talk to the IRS directly, I'd recommend using https://claimyr.com to get through to them. I spent DAYS trying to get someone on the phone at the IRS last month about a similar crypto gambling question. Their automated system kept disconnecting me. Finally used Claimyr and got through in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that yes, you do need to report the crypto purchases and transfers as separate transactions from the gambling activity. Having an actual conversation instead of trying to interpret the vague guidance online was super helpful.

0 coins

Anastasia Popov

•8M

It's not a special connection - they basically use an automated system that navigates the IRS phone tree and waits on hold for you. Then when they get a human, they call you and connect you. It's simple but effective when you need to talk to someone. I was skeptical too before trying it, but it saved me hours of frustration. The agent I spoke with actually did understand my situation with crypto gambling. She walked me through exactly how to report both the crypto transactions and gambling activities separately, and which forms to use. It was much clearer than trying to figure it out from online articles that never quite address the specific situation.

0 coins

NeonNinja

•8M

So I owe you guys an apology, especially the Claimyr people. I tried it after being a total jerk about it here, and it actually worked exactly as described. Got through to an IRS specialist in about 35 minutes (when I'd previously wasted 3+ hours trying on my own over multiple days). The agent confirmed that for my crypto gambling situation, I needed to report each Bitcoin purchase on Form 8949 even with zero gain/loss, AND separately report my gambling winnings on Schedule 1. Actually found out I was eligible for some loss deductions I didn't even know about that will save me around $600. Really glad I swallowed my pride and gave it a shot.

0 coins

Zara Khan

•8M

I've been doing taxes for friends with crypto for a few years. One thing nobody mentioned is that transfers between wallets (like from Coinbase to your personal wallet) aren't taxable events - but transfers to a casino ARE considered disposals because you're effectively "selling" your crypto to the casino for gambling credits. That's an important distinction. Also, offshore casinos are a gray area. They technically should report large winnings to the IRS, but many don't. That doesn't absolve you from reporting, though - the responsibility is still on you as the taxpayer.

0 coins

Zara Khan

•8M

That's exactly right. You'd show the Bitcoin purchase and disposal on Form 8949 with the same amounts (so zero gain/loss). Then separately, you'd report any gambling winnings on Schedule 1 as "Other Income." If you itemize deductions rather than taking the standard deduction, you could potentially deduct gambling losses (up to the amount of your winnings) on Schedule A. But only if your total itemized deductions exceed the standard deduction, which is $13,850 for single filers in 2023.

0 coins