How Do You Claim Gambling Winnings On Taxes

• How Do You Claim Gambling Winnings On Taxes Tax
• How Do You Claim Gambling Winnings On Taxes Due
• How Do You Report Gambling Winnings On Taxes
• How Do You Claim Gambling Winnings On Taxes Without
• Do You Claim Gambling Winnings On Your Taxes

Gambling losses are indeed tax deductible, but only to the extent of your winnings and requires you to report all the money you win as taxable income on your return. The deduction is only available if you itemize your deductions. If you claim the standard deduction, then you can't reduce your tax by your gambling losses.

While you may be able to deduct your gambling losses, gambling winnings are not directly offset by gambling losses in your tax return. You must be able to itemize deductions on Schedule A of your return in order to deduct the gambling losses, and then can only deduct an amount up to the amount of your gambling winnings. Pro gamblers claim winnings on Schedule C as a self-employed person rather than as other income on Form 1040. Even as a professional, you can’t deduct more losses than winnings in a year. You’re stuck in a tough situation with treating gambling as a day job, yet not being able to file losses that exceed winnings. Some gaming organizations will also have to submit a W-2G, a tax form that officially reports gambling winnings on your behalf. Most of these are submitted for winnings more than a certain amount, such as $1,200. If you aren’t sure if you’ve received a W-2G or not, contact the gaming organization (s) that issued your winnings.

Most gamblers hope to win money when they visit a casino, but many fail to think about the taxes they would have to pay on their winnings. Meet George and Frank, two American friends who spend a weekend gambling at the Las Vegas Bellagio. George wins $200 playing video roulette. Frank wins $1500 on a quarter slot machine (Play here). Both men make some significant financial mistakes that could get them into trouble with the IRS.

Mistake # 1 - Frank Fails to Pay Taxes on His Winnings

Before leaving the casino, Bellagio officials ask Frank to supply his Social Security number and fill out a W - 2G stating his $1500 winnings. When tax time rolls around, Frank forgets about the W – 2G and does not report the $1500 on his tax forms.

Could Frank Get in Trouble?

How Do You Claim Gambling Winnings On Taxes Tax

If Frank gets audited, he could indeed get in trouble with the IRS for failing to report his gambling income. Federal law mandates that slot machine winnings over $1200 must be reported to the IRS. The law also requires horse racing winnings over $600 and keno (click here) winnings over $1500 to be reported. Frank's legal obligation does not end with the W - 2G he filled out at the casino; he must also claim his winnings on Line 21 of his 1040. Failing to do this could result in stern penalties from the IRS.

What About George?

Bellagio officials did not ask George to fill out a W – 2G because his $200 earnings fell below the IRS threshold. Technically, however, he is supposed to claim his $200 winnings on Line 21 of his 1040 just like Frank. Unlike Frank, George stands little chance of getting caught if he fails to do this because there is no paper trail documenting his jackpot (read more). The only punishment George is likely to suffer is the discomfort of a guilty conscience.

If your winnings surpass the predetermined threshold, casino proprietors are required by law to have you fill out a W – 2G which reports your extra income. If you fail to submit this information to the IRS at tax time, government officials could catch a whiff of your paper trail and come after you. If your casino winnings do not surpass the predetermined threshold, you are still required by law to report the money, but without written evidence, the IRS stands little chance of catching you in your dishonesty.

Mistake # 2 - Frank Itemizes His $4000 Gambling Loss and Cheats Himself Out of the $5,950 Standard Deduction

Frank carefully records his losses at the Bellagio in a small notebook he keeps in his pocket. At the end of the weekend, he calculates a $4000 loss. When tax time rolls around, Frank itemizes this $4000 loss and feels like a tax-savvy gambling superstar. Unfortunately, the $4000 is Frank's only itemized deduction for the year and he's actually cheated himself out of a significant chunk of money. If Frank had bothered to do some research, he would have known that the standard deduction in 2012 is $5950. By itemizing only his $4000 loss at the Bellagio, Frank cheated himself out of an additional $1950 deduction.

The Moral of the Story

You can itemize gambling losses on your tax forms in order to recoup some of your lost money, but always find out what the standard deduction is first. You will only come out ahead if your itemized deductions add up to more than the standard deduction.

Mistake # 3 - George Itemizes His Gambling Losses, Which Are Greater Than His Winnings, and Gets in Trouble

After examining the pocketful of ATM receipts he accumulated while at the Bellagio, George realizes that although he won $200, he lost a total of $800. When tax time rolls around, George reports the $800 loss under the miscellaneous deductions section on Schedule A. He also reports his $200 winnings on Line 21 of his 1040. Unfortunately, George does not realize that deducted gambling losses cannot legally exceed gains. He gets audited and fined for failing to comply with this IRS regulation. It is perfectly acceptable to deduct your gambling losses, but you must also report your winnings. On top of that, your claimed losses may not exceed your stated winnings. George can legally claimed a $200 loss because he won $200, but he cannot legally claim an $800 loss in this scenario.

Mistake # 4 - George Fails to Document His Gambling Activities in an IRS-Approved Fashion

George is notified by the IRS that he is being audited and needs to provide legal documentation of the wins and losses he accumulated at the Bellagio. He digs through his suitcase, reassembles his collection of ATM and players card receipts, and submits these slips of paper to the IRS in a manila envelope. IRS officials reject his envelope, stating that this piecemeal form of documentation is unacceptable.

Conclusions

It is wise to track your casino expenditures, but saved receipts are not enough in the case of an IRS audit. Wins and losses should be logged in a notebook which includes the location, date, and amount of money won or lost. Game stubs are also acceptable documentation, but ATM and players club receipts are not.

All Americans must report gambling winnings to the IRS, regardless of what state or country they are in when they win. Gambling proprietors are required by law to report guest winnings that exceed certain predetermined amounts to the IRS. If you don't report your winnings and are audited, you could get in trouble.

Citizens are permitted to claim gambling losses on the miscellaneous deductions section in Schedule A, but losses may not exceed winnings. If you're thinking about itemizing gambling losses on your taxes, experiment with different deduction scenarios to see which will give you the biggest benefit.

Finally, keep track of your wins and losses in a detailed notebook. If you do get audited, IRS officials will only accept certain forms of financial documentation.

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This article was fact-checked by our editors and Jennifer Samuel, senior product specialist for Credit Karma Tax®.

Gambling may just be a hobby to you, but there’s nothing casual about it when it comes to filing your federal income taxes.

Nearly two-thirds of Americans gamble, according to a 2016 Gallup poll. And while you might think that winning a few bucks from a scratch ticket or a weekend trip to Vegas isn’t a big deal, the government considers every dollar you win from gambling as taxable income.

As a result, it’s important to understand how to report your gambling winnings, what to include and how you can use your losses in your favor. Here are some things you should know about how gambling winnings are taxed.

1. You must report all your winnings

Depending on how much you won during the year, you may receive a Form W-2G listing your gambling winnings. But even if you don’t receive the form, you’re still required to report all your winnings as “other income” on your tax return.

“All cash and non-cash gambling winnings are taxable and should be reported as ‘other income,’ ” says Patrick Leddy, partner at Farmand, Farmand & Farmand LLP. This includes any winnings you received from casinos, lotteries, raffles or horse races. Non-cash winnings, such as prizes like cars or trips, are also considered taxable income and are taxed based on their fair market value.

How Do You Claim Gambling Winnings On Taxes Due

To make sure you keep track of both your winnings and losses, record the following details every time you gamble:

• The date and type of your gamble or gambling activity
• The name and location of the gambling establishment
• Names of other people who were with you, if applicable
• How much you won or lost
• Related receipts, bank statements and payment slips

How Do You Report Gambling Winnings On Taxes

2. You can deduct some losses

No one likes to talk about how much money they lost gambling. But when it comes to your tax return, being honest can save you money. That’s because the IRS allows you to deduct gambling losses.

Though you may not be able to deduct all your losses.

“Taxpayers can deduct gambling losses only up to the amount of their gambling winnings,” says Leddy, “and only if they itemize their deductions.”

For example, if your gambling winnings totaled $5,000 in the tax year, but you lost $6,000, you can only deduct $5,000 of those losses. Keep in mind, itemizing your deductions may not afford you the maximum tax benefit. If your total itemized deductions — which can also include charitable donations, home mortgage interest and medical expenses — don’t exceed your standard deduction, itemizing might not be the optimum choice for you.

How Do You Claim Gambling Winnings On Taxes Without

Can I deduct the cost of a gambling addiction recovery program?

Do You Claim Gambling Winnings On Your Taxes

IRS Publication 502 lists alcohol and drug-related addiction-recovery programs as eligible for the medical expense deduction. However, gambling addiction isn’t included. If you need help dealing with a gambling addiction, you can call the Substance Abuse and Mental Health Service Administration’s 24/7, 365-days-a-year hotline at 1-800-662-4357.

3. Even illegal gambling winnings are taxable

According to the American Gaming Association, it’s estimated that Americans spend more than $150 billion per year on illegal U.S. sports betting — and yes, that can include your office March Madness pool.

A May 2018 U.S. Supreme Court ruling opened the door for states to legalize sports betting, but not all have done so. That said, any winnings you receive from betting on sports legally or illegally (or from any illegal activity, for that matter) are still taxable.

Bottom line

So how are gambling winnings taxed? Every dollar you win from gambling, whether legally or not, is considered taxable income. As a result, it’s critical that you keep a record of your winnings so that you can report them accurately. You’ll also want to keep track of your losses so that you can use them to qualify for a tax break.

Once you’re ready to file your taxes, Credit Karma Tax® can help show you where to include both your winnings and your losses so that you can maximize your tax refund if you’re owed one.

Jennifer Samuel, senior tax product specialist for Credit Karma Tax®, has more than a decade of experience in the tax preparation industry, including work as a tax analyst and tax preparation professional. She holds a bachelor’s degree in accounting from Saint Leo University. You can find her on LinkedIn.

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