Which Countries Allow Tax-Free Gambling Winnings?
Some countries allow tax-free gambling winnings, but there's more to meets the eye with these policies that aren't always for the best for everyone.
Imagine that you win a big prize worth $1 million. If you live in the United States, chances are that you'll actually only end up seeing about $600,000 of it, depending on where you live, and that's before the other taxes you pay like property tax and sales tax on whatever you buy. Some countries do not tax gambling winnings in this way, and they're treated just like you found money laying around somewhere. This can seem like a much better way to go about things, but there are some drawbacks.
Countries with No Taxes on Gambling Winnings
There are three big countries that do not tax gambling winnings that need to be mentioned. They are Canada, the United Kingdom and Germany. If you win $1 million in one of these countries, you're going to get to take home $1 million. None of these countries see gambling winnings as necessarily being reasonable income, but things get more complicated when you look at the other implications of that.
For example, if you lose $10,000 gambling in the United States, then you can deduct that from your income. In the three countries listed above, you do not have that option. This means that there are both pros and cons to having gambling winnings not viewed as legitimate income for most players. However, there's even more to it than that.
The Case of Professional Gamblers
Imagine you want to be a professional gambler. In most countries that do not normally tax gambling winnings, you can do your taxes so that you are set up like a business. This means you can claim profits just like you would a legitimate business, especially in the case of poker players or the rare sports betting punter who can beat the bookies. However, look at what happens if you can't deduct your losses.
Suppose you had $200,000 in winnings but $150,000 in losses. This would give you a net profit of $50,000 in a calendar year, which isn't bad at all. However, you aren't necessarily going to be taxed on your $50,000 profit. Instead, you could end up being taxed on your $200,000 in winnings. If the tax rate ends up being more than 25 percent, then that means you would actually owe more in taxes than you made for the year. This is another example of how the details of the tax code go way behind a simple decision whether or not to tax gambling winnings.
In short, there has to be a consistent approach that makes sense for everyone. Unfortunately for some players from the UK, Canada, Germany and even the United States, professional gamblers and many other players can end up in a situation where their losses are not deductible from their income, which means they can owe more taxes than they actually made in profit from gambling.