When we think of gambling, our first thoughts may be of casino games or the lottery. However, the IRS requires all gambling income to be reported, including winnings from raffles, fantasy football, and even sports betting. The IRS has specific regulations for reporting gambling activities, which can significantly impact your tax obligations. Here’s an overview of taxes on gambling winnings.
All Gambling Income Must Be Reported
All income earned through gambling must be reported to the IRS. Gambling income includes any winnings from lotteries, raffles, horse races, casinos, and other forms of betting. This also covers cash winnings and the fair market value of non-cash prizes such as cars, trips, or other items. Failing to report all income can result in IRS penalties.
How to Report Gambling Income
When you win a significant amount, the payer (such as a casino or lottery agency) must issue a Form W-2G to report the winnings to you and the IRS. The thresholds for this reporting vary by the type of gambling:
$600 or more in winnings (if the payout is at least 300 times the wager amount)
$1,200 or more from bingo or slot machines
$1,500 or more from keno
$5,000 or more from poker tournaments
Even if you do not receive a Form W-2G, you are required to report all gambling winnings, both cash and non-cash, as “Other Income” on your Form 1040.
You Can Deduct Gambling Losses If You Itemize
Reporting cash winnings is straightforward. However, taxpayers should know that they are not allowed to subtract the cost of gambling from their winnings. In other words, if you place a $10 bet and then win $500, your taxable winnings would be $500, not $490. While you cannot deduct the cost of your wager from your winnings, you can deduct your losses if you itemize your deductions on Schedule A.
You can deduct losses up to the amount of the gambling income claimed. For example, if you won $1,000 but lost $3,000, you can only deduct $1,000. You must also include the $1,000 won in your income. To claim these deductions, you must keep accurate records of your gambling activities, including:
Receipts, tickets, statements from the gambling establishment
Form W-2G, if applicable
Canceled checks or credit records
A detailed diary of your gambling activity, noting the dates, types of gambling, amounts won and lost, and the names and addresses of the establishments.
You Can Deduct More If You’re a Professional Gambler
If you gamble to make a living, you are also not allowed to deduct losses that exceed your winnings. However, you would be considered a self-employed individual and would be able to deduct “business expenses” using Schedule C. This can include magazine subscriptions that relate to gambling, internet costs if you place bets online, and travel expenses.
Professional gamblers can also carry forward net operating losses to future tax years, which can help offset income in those years. However, like any other business, you will be responsible for paying self-employment tax and estimated taxes each quarter. Remember that state tax laws vary, and some states do not allow the deduction of gambling losses. Additionally, certain types of gambling may be illegal in some jurisdictions, which can complicate the tax reporting process.
You Should Keep Adequate Records
If you are ever audited, the IRS will expect to see detailed records of your gambling winnings and losses. Whether you gamble professionally or casually, you should record the date, name of the gambling establishment, type of wager made, amount won or lost, and the names of anyone with you during the gambling. You should also keep copies of receipts, W2-G forms, wager tickets, and anything else that can supplement your gambling log.
Tax Relief for Gamblers
Whether you gamble casually or professionally, you must always report all gambling winnings. It may be tempting to report large losses and downplay your winnings, but reporting losses typically raises red flags with the IRS. This means higher chances of being audited by the IRS, which is a whole other issue. In short, it’s always best to report your gambling income and losses accurately. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
Moving to a new state is often an exciting adventure, but amidst the hustle and bustle of relocation, it’s easy to overlook important details, such as how the move will impact your taxes. State tax laws vary widely, and failing to understand and plan for these differences can result in unexpected financial consequences. To help you stay ahead of the game, here’s a comprehensive tax checklist for anyone considering a move to a different state.
Check the Income Tax Rate
When researching where to move, finances are sure to be a top priority to keep in mind. Sometimes this means choosing a state that has a lower cost of living. Another thing to consider is the state income tax rate. Certain states do not tax any income. These include:
Alaska
Florida
Nevada
South Dakota
Texas
Tennessee
Washington
Wyoming
New Hampshire does not tax W-2 wages but does tax certain investment and business income. However, this tax will be eliminated in 2025. California, Hawaii, New York, New Jersey, Oregon and Minnesota currently have the highest income tax rates.
Check Property Tax Rates
Property tax rates can vary widely from state to state, and even within states, they can vary by county or municipality. It’s essential to research the specific property tax rates in your new location to accurately budget for homeownership expenses. Some states, like New Jersey and Illinois, are known for having particularly high property tax rates. Others, such as Hawaii and Alabama, have comparatively lower rates. Before purchasing a home in your new state, research recent property sales in the area to get an idea of the market value and potential property tax implications.
High property tax rates can impact the affordability of homeownership. This is especially true for those on fixed incomes or with limited financial resources. When considering a move to a new state, factor in the property tax implications alongside other housing-related expenses, such as mortgage payments, insurance, and maintenance costs. Property taxes are generally deductible on federal income tax returns, subject to certain limitations. However, the deduction for state and local taxes, including property taxes, is capped at $10,000 per year for individuals or married couples filing jointly.
Check Sales Tax Rates
Sales tax rates are another critical consideration when moving to a new state, as they can impact your day-to-day spending habits and overall cost of living. Sales tax rates can vary significantly from state to state and even within states. While some states have a single statewide sales tax rate, others allow local jurisdictions to impose additional sales taxes, resulting in varying rates within the same state.
Certain goods and services may be exempt from sales tax in some states. Common exemptions include groceries, prescription medications, and clothing. Additionally, some states impose special sales tax rates on specific items, such as gasoline, alcohol, tobacco, and prepared meals. Be aware of these special rates and how they may impact your budget. Sales tax rates can have a significant impact on the overall cost of living in a particular state. Higher sales tax rates may make goods and services more expensive, reducing your purchasing power and impacting your budget. When considering a move to a new state, factor in the sales tax rate alongside other cost-of-living expenses.
Check Your Filing Requirements
If you lived in two or more states during a year, you would need to check the filing requirements for each state. The requirements are typically listed on the state’s tax authority website. In most cases, you’ll need to file a return in all states you lived in during the tax year. To do this, you’ll need to calculate your earnings in each state and determine the percentage of your income that was earned in each state. You’ll need to file the relevant tax forms in each state, usually as a resident or part-year resident. It’s important to note that two different states legally cannot tax the same income, so moving states does not necessarily mean you will pay more taxes.
There may be some scenarios in which you moved states, but still work in your old state. In this case, you would likely need to file a tax return in the state where you live, as well as a nonresident tax return in the state where you work. You may also want to check the tax laws in your new state. Finding out how your new state handles itemized deductions, state tax deductions, or federal tax changes can help you avoid unexpected issues during tax time.
Check Which Income Types Are Taxable
If you have multiple sources of income, it is vital to check how the income will be taxed in your new state. Interest and dividend income is typically taxed by the state in which you are a permanent resident. In addition, some states require estimated tax payments on some incomes. Not knowing the rules or deadlines for these can result in underpayment penalties.
Investments that are tax-exempt in your old state may suddenly be taxable in your new state. While all states do not require you to pay taxes on federal bonds, not all states have the same definition of a federal bond, meaning some tax bonds and others do not. Retirement income is also taxed differently in certain states, so if you are moving because of retirement, you may want to check the tax laws surrounding retirement income first.
Check Your Eligibility for Moving Expense Deductions
The 2017 Tax Cuts and Jobs Act (TCJA) eliminated the moving expense deduction for taxpayers, unless they are active-duty military members. However, this act is set to expire beginning in 2026.
Tax Relief for Those Moving States
It goes without saying that filing taxes after moving states can become very complex, especially if you have several income sources. Sometimes the new state you move to may not be your first choice, like when you’re an active-duty military member or are relocating for a job. In other cases, you may have the option to choose which state you want to relocate to. In these cases, researching tax laws in your new state can save a lot of time, money and stress during tax time. It may be best to seek the help of a credible tax preparer or professional to look at your tax situation. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success.
Tax deductions can help lower your tax bill and even increase your tax refund on your return. While most people are aware of common deductions like mortgage interest, charitable donations, and medical expenses, there are a plethora of lesser-known expenses that could potentially save you money on your taxes. There are several tax deductions you might not know are deductible.
Sales Taxes
For taxpayers who itemize deductions, you can deduct either state and local income taxes or state and local sales taxes paid throughout the year. In some tax years and states, it might make sense to itemize your deductions rather than take the standard deduction. This deduction can be particularly advantageous for residents of states with no income tax or for those who made significant purchases subject to sales tax. For example, if you made a large purchase like a vehicle or engagement ring, you could deduct sales taxes off your federal return. Or, if you live in a state that does not impose a state income tax, you could write off the sales tax you paid that year.
Medical Expenses
You can deduct medical expenses that exceed 7.5% of your AGI if you itemize your deductions. On the other hand, if you’re self-employed, you may be able to deduct 100% of your health insurance premiums. To qualify, you must have no other health insurance coverage. You may only deduct the amount of business income earned that year.
Home Office Deduction
Any space in your home used exclusively for conducting business can be deducted at $5 per square foot, up to 300 square feet. This home office deduction is meant for self-employed individuals. In other words, if you are a W-2 employee who works remotely, you do not qualify.
Charitable Contributions
Cash donations to approved charities can be deducted for up to 50% of your AGI. However, you must be substantiated with bank statements or receipts. Non-cash donations can be deducted at fair market value. Even out-of-pocket expenses for charitable work can be deducted. For example, you can deduct the cost of gasoline to travel to complete charitable work. Alternatively, you can deduct mileage. The standard mileage rate for charitable travel in 2023 was 14 cents per mile and it will remain at this rate in 2024.
Be sure to confirm that the charity has a tax-exempt status with the IRS before donating if you plan to claim a deduction. A few examples of approved organizations include a trust, foundation, church, synagogue, or other religious organizations, and veterans’ organizations.
Child & Dependent Care
If you pay a babysitter to watch your children while you work, look for work or attend school full-time, you may be able to claim the Child and Dependent Care Credit. This can also apply to care for an elderly parent. They must live with you and qualify as a dependent.
Student Loan Interest
If you are required to repay student loan debt, you can deduct the interest paid, up to $2,500. If your parents paid your student loan debt, the IRS views that money as a gift to you used to pay the loan. In this case, you can deduct up to $2,500 of the student loan interest they paid. That is as long as they do not claim you as a dependent on their tax return.
College Expenses
While most people are familiar with the deduction for tuition and fees, other educational expenses may also be deductible. This includes costs for workshops, seminars, and even certain textbooks and supplies. In addition, some states even allow you to deduct contributions made to your 529 College Savings Plan.
State Tax Deductions
Your state may also offer its own set of unusual tax breaks. For example, Hawaii offers a tax deduction to taxpayers who maintain an “Exceptional Tree,” like the native Norfolk Pine. This deduction is up to $3,000 per tree and can be claimed once every three years. Alaska offers a deduction of up to $10,000 to offset the cost of whaling, which involves hunting whales to give the blubber and skin back to the community. New Mexico allows its residents to stop paying state income taxes once they reach 100 years old, as long as they’ve been a resident for the last six months.
Tax Relief for Taxpayers
Every tax situation is different. There are countless deductions and credits taxpayers can claim on their federal or state returns. Overall, the best thing to do is speak with a tax preparer about which deductions and credits you are eligible for and what substantiation might be needed to claim them. However, do remember claiming deductions without proper substantiation can lead to audits and delays in processing your return.
Filing your taxes can be stressful. Filing at the last minute can only add to the stress. As April 15th looms closer, the annual flurry of last-minute tax filers begins. Whether due to procrastination or complexity, many individuals find themselves scrambling to organize their finances and complete their tax returns before the deadline. If you haven’t filed your tax return yet, there’s no need to panic just yet. While the rush can be stressful, there are several strategies and tax tips for last-minute filers to help navigate this period efficiently and accurately.
Know Your Facts
The most important fact to keep in mind is the tax deadline. In 2024, the tax deadline is April 15th. Other than this deadline, it’s vital to understand your specific tax situation, especially since it can vary from year to year. New changes like getting married, having a child, starting a business, or purchasing a home can alter your tax situation. Knowing which credits you can claim, or which forms you’re required to submit can help prevent last-minute errors and stress.
Gather All Necessary Documents
The first step for any tax filer, especially those running against the clock, is to gather all relevant documents. This includes W-2 forms from employers, 1099 forms for freelance or contract work, receipts for deductible expenses, investment income statements, and any other financial documents pertinent to your tax situation. Having all necessary paperwork on hand will streamline the filing process and minimize the chances of errors or omissions.
Utilize Tax Preparation Software
Tax preparation software can be a lifesaver for last-minute filers. They provide step-by-step guidance, automatic calculations, and error-checking features to simplify the filing process. These platforms also offer electronic filing options, which can expedite the submission of your return and ensure faster processing by the IRS. Additionally, many tax software providers offer mobile apps, allowing you to file directly from your smartphone or tablet for added convenience.
Maximize Your Deductions and Credits
It’s not uncommon for taxpayers to overpay taxes or receive a smaller refund because they did not take advantage of all the tax deductions and credits they qualify for. Rushing through your taxes can help contribute to this. Common deductions include expenses related to homeownership, education, medical costs, and charitable contributions. Similarly, tax credits such as the Earned Income Tax Credit (EITC), Child Tax Credit, and Education Credits can provide significant savings. Take the time to review available deductions and credits to maximize your tax refund or minimize the amount owed. If you’re unsure, ask your tax preparer about your specific tax situation.
Check for Accuracy
Amid the frenzy of last-minute filing, it’s easy to make mistakes or overlook important details on your tax return. Once you have all the forms completed and ready to be submitted, you should check everything for accuracy. Double-check numerical entries, ensure that your personal information is accurate, and verify that you’ve claimed all applicable deductions and credits. Even a small error could result in delays in processing or trigger an IRS audit, so attention to detail is crucial.
File Electronically and Opt for Direct Deposit
When time is of the essence, filing your taxes electronically is the fastest and most secure option. E-filing a complete and accurate return will also mean receiving your refund faster. E-filing eliminates the need for paper forms and postage, expediting the processing of your return and reducing the risk of errors. Additionally, opting for direct deposit for any tax refunds can further accelerate the receipt of your funds. Refunds issued via direct deposit are typically deposited into your bank account within a few weeks, whereas paper checks may take significantly longer to arrive by mail.
Seek Professional Assistance if Necessary
If your tax situation is particularly complex or you’re unsure about certain aspects of your return, don’t hesitate to seek professional assistance. Certified public accountants (CPAs) and tax preparers have the expertise and knowledge to navigate intricate tax scenarios and ensure compliance with ever-changing tax laws. While professional tax assistance may come with a fee, the peace of mind and potential savings from maximizing deductions or avoiding penalties can outweigh the cost.
Tax Relief for Last-Minute Filers
Sometimes filing last minute is a necessity, but it is best to avoid this scenario whenever possible. Tax rules can change year to year so starting the filing process early is one of the few ways you can make the process run more smoothly. By following these tips and remaining organized, last-minute filers can successfully navigate the deadline rush and submit accurate tax returns. Remember to gather all necessary documents, consider filing for an extension if needed, utilize tax preparation software, maximize deductions and credits, review for accuracy, file electronically, and seek professional assistance if necessary. With careful planning and attention to detail, you can meet the tax deadline with confidence.
The tax filing deadline is just around the corner. If you need more time to prepare your tax return, you can file a tax extension. While a tax extension won’t give you more time to pay your taxes, it will allow a few more months to file your tax return without receiving a failure-to-file penalty. Here’s an overview of how tax extensions work and how to file one.
What is a Tax Extension?
The IRS allows taxpayers to file for a tax extension, which gives them more time to prepare their tax returns. If approved for a tax extension, the new tax deadline would be October 15, 2024. You can file for a tax extension for any reason, and the IRS will approve it as long as you submit Form 4868 by the April 15th tax deadline. While some states accept federal tax extension forms, others have their own requirements for obtaining an extension. Some states like California, Wisconsin, and Alabama offer automatic extensions, which means you don’t have to file a form. Other states require you to request an extension. You can check with your own state tax authority for more information on this.
Does a Tax Extension Delay My Tax Payments?
While a tax extension won’t delay the deadline to pay taxes, it will allow a few more months to file your tax return without receiving a failure-to-file penalty. That said, you might be wondering how much tax to pay if you aren’t sure how much you will owe, if any at all. In this case, you’ll need to estimate the amount of tax you will owe and pay that amount by April 15. If you do not, the IRS will begin to charge you interest on the balance owed, plus penalties. The failure-to-pay penalty is 0.5% of the tax owed after April 15, for every month or part of a month the tax remains unpaid, up to 25%.
Calculating Estimated Tax
To calculate your estimated tax payment, you’ll need to first calculate your taxable income and then subtract tax deductions, or the standard deduction. The amount leftover should be an estimate of your taxable income for the year. Then you can apply your tax rate determined by your tax bracket, which is based on your taxable income and filing status. This should help you find the amount of tax owed for the year.
Tax withholding should cover most, if not all, of this amount. If it does not, you can offset this amount by claiming tax credits you are eligible for. The tax remaining should be paid at the April tax deadline. If you overpay, you will receive a tax refund when you file before the October extension deadline. If you underpay, you could owe the balance, plus an underpayment penalty.
Tax Underpayment Penalty
The IRS underpayment penalty is a fee assessed on taxpayers who do not pay enough taxes during the tax year. While interest rates can change, the current rate for is 8% for individuals and 10% for corporations. There are a couple ways to avoid the underpayment penalty. The first is to owe less than $1,000 when you file your return. Alternatively, you could pay either 90% of the current year’s tax or 100% of last year’s tax, whichever is less. However, if your AGI exceeds $150,000, you should pay the lesser of 90% of the current year’s tax or 110% of last year’s tax. Doing so should help you avoid the underpayment penalty.
The IRS also offers underpayment waivers for some scenarios including:
Taxpayers who were U.S. citizens or residents for the prior tax year and did not owe any taxes for that year
Taxpayers who missed a required payment because of a casualty event, disaster, or other unusual circumstance
The tax underpayment was a result of reasonable cause and not willful neglect
Taxpayers who retired after reaching age 62 during the current or preceding tax year
Taxpayers who became disabled during the tax year for which estimated payments were owed or during the preceding tax year
Should I File a Tax Extension?
If you are certain that you cannot file your tax return by the April 15 deadline this year, then you should at the very least file a tax extension before the tax deadline. This can immediately save you the trouble of dealing with a failure-to-file penalty. The current failure-to-file penalty can be up to 25% of the tax due. This penalty will not be charged if you file an extension, but it will be if you do not file a return by the extension deadline of October 15. Additionally, you should make sure you pay estimated taxes by the April 15 deadline to avoid the failure-to-pay penalty and the underpayment penalty.
Filing a tax extension can be very helpful if you are still awaiting important tax documents, need some documents corrected, or just simply do not have time to file before the deadline. If you are wondering if you should file an extension because you owe taxes and you are unable to pay, filing an extension may not be a good idea. Instead, you might consider getting a payment plan or installment agreement set up with the IRS. We know dealing with the IRS on your own can be intimidating. Optima Tax Relief has over a decade of experience helping taxpayers get back on track with their tax debt.
