If you have been in the habit of getting your offshore gambling payments transferred to you through the American banking system (ie. ACH, checks, bank wires, etc.) and into your American-based bank account, well, look out. I'm not predicting anything bad will happen, but if the American government ever seizes those offshore bank accounts and does some forensic auditing, they might just realize that you have been winning a
LOT more than losing and forward your info to the IRS. Then you can expect an audit, and in my experience, the IRS doesn't go through the effort of an audit without finding... something. And "undeclared income" is a very bad thing for them to find.
So right there is a good reason to
follow Lou's advice and only use safe money transfer methods when dealing with your offshore sportsbooks. It's just smart and minimizes the risk of the IRS building a strong case against you. But an even better idea would be to just bite the bullet and start declaring your winnings. I'm sure that with a good accountant and good record keeping, you will be able to balance things in a way that keeps you on the right side of the IRS without undue financial pain.
And here is another reason to train yourself to keep more detailed records of your gambling activities. Yes, it might create a paper trail that your spouse might find. But not only is it the best way of keeping yourself aware about the true costs of your hobby, but it also makes it a lot easier for you to itemize your gambling activities so that your accountant might find a few loopholes you can jump through. For more information about the importance of detailed gambling records, again check out
Chuck Humphrey's website.
What Exactly is a Professional Gambler?A final question you might ask at this point is, "Tell me more about declaring myself a Professional Gambler. How's that work?"
Again, I'm not an accountant or a tax attorney, but in the world of the American tax system there is one way for you to legitimately claim your gambling losses as deductions, and that would be to declare your occupation as "Professional Gambler".
This is something that used to be quite rare, but is now becoming more and more common with the rise in popularity of poker. People have been quitting their jobs and becoming professional poker players. So if you are a regular winner at online sports, you might be able to declare yourself a pro and take advantage of the deductions available to professionals.
Unfortunately, it's not as easy as it sounds.
The IRS feels a Professional Gambler should be a full-time job, and with that goes all of the self-employment tax filings and whatnot. So you probably need to be gambling (and claiming) a significant amount of money before it would be worth your while to go through the time and effort of becoming a pro. Not to mention the troubling issue of having another full-time occupation, if that applies to you. That being said, lots of poker players manage to skirt this issue and still claim to be pros without getting hassled by the IRS, who is probably just happy to see people reporting their gambling income.
Bottom line: If you are worried about the IRS finding out about exactly how much money you have been winning, then maybe you should get proactive about the situation and talk to your accountant about the pros and cons of becoming a professional gambler.
What is becoming clear is that, whether it's legalized and regulated or offshore and unregulated, the American government is getting closer and closer to knowing exactly how much you gamble and win online. And that means you are going to have to start thinking about claiming those winnings and paying taxes.