If you win $1,000 at gambling that means your profits will be $1,000 too, right? Well, not always, because it depends on which jurisdiction you are living in. Each country has its own rules and regulations regarding online gaming, and so you need to do your homework to find out which is the best country for you to play in.
In many countries, gambling winnings are not considered to be income, which means that they’re not taxed. Unfortunately this also means your losses aren’t tax deductible, so if you lose, you lose big. Other country’s laws state that gambling can be considered as income however, which means winnings are taxed. On the other hand, many countries, such as China and Turkey, ban online gambling altogether and will seize your winnings if you’re caught playing.
Many countries, notably Canada, Germany and the U.K., do not treat gambling as a legitimate means of income and as such, your winnings will not be taxed. While this may sound good, beware that it also means losses are not tax deductible, which can be a disadvantage.
The problem with losses not being tax deductible is that it makes it tough for professional gamblers to make a living. You have to consider that professional gamblers can win or lose massive amounts of money over the course of a year, and by deducted losses from their tax, players can make a good profit altogether. For example, a pro bettor who wins $60,000 a year playing no deposit bingo but loses $50,000 through online poker would only have a profit margin of $10,000. That’s not enough to live on, but it be can considerably more if the winnings are taxed and the losses deducted.
The most famous example is the U.S., which has an extremely complicated system for taxing gaming winnings. American law defines gambling profits as income, which means your winnings will be taxed and your losses can be deductible.
The system is a little complex though, because bettors can only deduct their losses up to the amount of money they have reported as winnings. Which means that if you lose $8,000 but only win $5,000, only the $5,000 can be deducted. This would mean that the bettor takes home $10,000, minus the amount they have to pay in taxes.
America adopted this system as a result of the famous Bathalter vs. Commissioner case, which involved a horse racing bettor who lost $87,000 but won $91,000 in a single year. Bathalter attempted to deduct the losses when filling in his tax return, but the Internal Revenue Serviced challenged his claim. In the end, the court ruled that Bathalter’s losses were indeed deductible, but said this could only be done in cases where the bettor won more than they lost. The system is advantageous for pro bettors, as it allows them to increase the spread.
As such, it might sound better to gamble online in a country that doesn’t tax your winnings, but for professional gamblers, sometimes a more complex system is best.