Taxes on Gambling Winnings

by | May 21, 2024 | Tax Planning

gambling income and losses

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.   

If You Need Tax Help, Contact Us Today for a Free Consultation 

How Are Gambling Winnings Taxed?

by | Jul 5, 2023 | Taxes & Your Savings

how are gambling winnings taxed?

Most people dabble in gambling at some point in life. It might look like a day at the racetrack, a quick stop at the gas station for a lottery ticket, or a weekend in Las Vegas. The IRS views all these activities as gambling, among many others. More importantly, the IRS wants everyone to know that all gambling winnings are considered taxable income. In this article, we’ll break down how gambling winnings are taxed, how to handle taxes if you gamble professionally, and how to deal with gambling losses. 

Gambling Winnings are Taxable 

Any winnings you receive from gambling, whether small or large, are considered taxable income and must be reported to the IRS. This is true whether the payer reports the winnings or not. If the payer does report your winnings to the IRS, they will do it through Form W-2G, Certain Gambling Winnings if: 

  • Winnings (not reduced by the wager) are $1,200 or more from bingo or a slot machine 
  • Winnings (reduced by the wager) are $1,500 or more from a keno game 
  • Winnings (reduced by the buy-in) exceed $5,000 from a poker game 
  • Winnings (except for bingo, slot machines, keno, or poker) reduced by the wager are $600 or more, or at least 300 times the wager 
  • Winnings are subject to federal income tax withholding 

It should also be noted that other gambling winnings not reported are also taxable. This includes the fair market value of any prize won, such as a car or vacation. All gambling winnings must be reported as other income on Form 1040 during tax season. 

Reporting Winnings as a Professional Gambler 

If you gamble as a means of regular income, you’ll instead file a Schedule C as a self-employed individual. What makes this different from reporting your winnings on Form 1040? The main difference is that those who gamble for a living can deduct your costs of doing business using Schedule C to reduce your taxable income. This includes: 

  • The cost of magazines, periodicals, or other data you use in relation to your gambling 
  • Some of your internet expenses if you place bets online 
  • Meals and travel expenses for tournaments 

It does not include deducting your losses that exceed your winnings. On top of that, you will need to pay self-employment tax on your winnings. If you gamble professionally, be sure to keep good tax records for an easier filing process later. 

Deducting Gambling Losses 

You can deduct gambling losses as long as they do not exceed your winnings. However, in order to do this, you will need to itemize your deductions. That said, it’s not beneficial to try to deduct your losses if itemizing your deductions will yield a larger tax liability than taking the standard deduction. For example, if you won $1,000 while gambling but lost $3,000, you may only deduct $1,000 when itemizing. You will need to claim $1,000 in income on your Form 1040 and then deduct $1,000 when you itemize using Schedule A.  

What if I don’t report my gambling winnings? 

Failure to report gambling winnings or attempting to evade taxes can have serious consequences. Penalties for non-compliance can range from monetary fines to legal action, including criminal charges. It is crucial to maintain accurate records of gambling activities, including wins, losses, and related expenses, to ensure compliance with tax laws. Remember, staying informed and fulfilling tax obligations will help you enjoy your gambling pursuits while avoiding any potential legal or financial repercussions. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations. 

If You Need Tax Help, Contact Us Today for a Free Consultation