If you won the jackpot this year at one of the Casinos, you’ll want to put a little aside for the IRS. Casino winnings are taxable, and large payouts need to account for the percentage owed to the government when tax season comes. So, how do you know if you owe? Read this article, then bring your information to Tax Associates of Bronx, New York so they can help you calculate what you need to send.
The first thing to know about claiming your gambling earnings is that all gambling earnings are required to be reported, even if you don’t receive a W-2G. If you receive a W-2G, chances are you won a prize or financial amount that exceeded $1200.00. This means that anything less than $1200.00 should be kept track of by the individual so that they can report the income on their Federal taxes. If you and a group pool your money together to purchase a lottery ticket, or to win a prize, you will need to file for a 5754 to report your winnings. The government is strict when it comes to gambling taxes, so keeping these records is essential to preparing and filing responsibly.
Gambling income includes Quick Draw, Slot Machines, Raffles, Sweepstakes, Lottery, Track winnings, and even Game Shows. Winnings are not just monetary, and the fair market value for any prizes should also be calculated. The IRS recommendation is that you keep a gambling diary, which includes the following information:
This will help you keep an accurate log of your annual activity, and is easily brought with you to any situation where you know you may be entering a contest, sweepstakes, or taking part in gambling.
Knowing what you earned helps determine what you owe in taxes. Gambling is traditionally subject to a 25% tax rate, which means that the IRS is owed 25% of your earnings. However, there is hope for chronic gamblers! You can also deduct your expenditures when it comes to gambling.
Deductions for gambling will only offset your winnings if you itemize your return. Be sure to sit down at length with a tax professional from Tax Associates and discuss your itemized return versus accepting the Standard Deduction. Depending on your other itemized deductions, you may be better off not claiming the expenditures and allowing the Standard Deduction to offset your owed taxes. Winnings and expenditures are filed on your Schedule A, and if the winnings are small, you may not need to worry about paying them back. It’s just as important to keep a record throughout the year, therefore, of what you have spent in gambling as it is to keep a record of what you have earned. Keep in mind, your losses are a gambling deduction, so they will only offset what you’ve won, not earn you additional deductions or credits. You can only deduct losses if you keep receipts, tickets, statements, or other records showing the amount spent. Another great way to keep track if you’re a Casino gambler is to make sure you have a Player’s Card. This automatically keeps track of your spending and earnings, and you can call the casino for a log of your activity.
In the case of professional gamblers, gambling income would be considered professional income, and therefore would not be taxed as winnings, but as income. If you are a professional gambler, you will file a Schedule C, and should contact a tax preparer to better understand the expenses you can claim in association with your profession.
New York State also has it’s own rules with filing taxes for Casino winnings, and is one of the strictest states in the U.S. Prize payments from the New York State Lottery and other gambling winnings are subject to income taxes both State and Locally. In addition, large prize winners can end up owing a large amount, since income over $500,000.00 in New York state will result in 50% of your deductions being ineligible. For example, if you win $800,000.00 and you spent $400,000.00 on gambling, you would only be able to claim $200,000.00 of that as a deduction.
In cases of lottery winners in New York State, if the winner is deceased and still has payments coming to them, their estate holders are still subject to tax and must file accordingly. The lottery winnings are included as part of their estate, and you should file the ET-706, including the value of future lottery payments.
Tax laws on gambling and casino winnings are intricate and complex, especially when filing in New York. A local tax professional who is familiar with county and state law is essential to the proper filing of your taxes.
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