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5 Things You Need to Know About Gambling Income Tax

5 Things You Need to Know About Gambling Income Tax

The gaming industry is booming. New sports betting parlors and casinos are popping up all over the country, Las Vegas is booming, lotteries and betting parlors are popular, and online gambling is seemingly at its peak. There are plenty of opportunities to gamble if you like to bet. And if you like it, we hope you go home a winner.

But, if you are lucky enough to win some money while gambling, remember that the IRS wants its share, too, so before you go to spend the jackpot, here are 5 things to remember regarding gambling income tax.


You must report all income.

Whether it's $5 or $15,000 from a casino, an office pool, a racetrack, or a gambling site, all gambling winnings must be reported on your tax return as "other income" on Schedule 1 (Form 1040). If you win a non-cash prize, such as a trip or a car, report the fair market value as income.

And don't forget to report all gambling winnings. If you win $50, report $50. The IRS isn't looking for small winners, but you don't want to be seen as a tax evader anyway.


You can get a W-2G Form.

You will typically receive a Form W-2G from the IRS if your gambling profit is at least $600 and the payout is at least 300 times your initial stake. Limits are $1,200 for slot machines or bingo winnings, $5,000 for poker tournament winnings, and $1,500 for keno winnings (and the payout does not have to be 300 times your stake for these types of winnings). Your reported income will be listed in Box 1 of Form W-2G.

If a W-2G is required, the payer (gym, casino, racetrack, lottery, etc.) will need to see two pieces of ID. One of them must be a valid means of identification (i.e., a photo ID). You will also need to provide your social security number or if you have one, a personal tax identification number.

In some cases, you will receive Form W-2G on site. Otherwise, for this year's earnings, the payer must submit the form by January 31, 2023. If your bet was placed in a casino, we are sure that you will receive the W-2G form. However, if your bet was just a friendly bet with a friend, or you hit the jackpot at the office, don't count on it.


Withholding may be required.

Normally, if you win more than $5,000 on a bet and the payout is at least 300 times the value of the bet, the IRS requires the payer to withhold 24% of your winnings for tax purposes. (Special withholding rules apply to bingo, keno, slot machine, and poker tournament winnings.) The amount withheld will be shown in Box 4 of the Form W-2G you will receive. You will also be required to sign the W-2G indicating that the information on the form is correct under penalty of perjury.

When you file a 1040 next year, include the amount withheld as federal withholding. It will be deducted from the tax due. Also, you will need to attach the W-2G return form.

Again, here's what to expect when betting at a casino, racetrack, sports betting parlor, or other legally run gambling business. Don't expect the guy running an office pool to withhold taxes even though, technically, he should.


Your losses may be tax-deductible.

Did you have a stormy night at the blackjack table, or did you pick the wrong horse to win? If you lose a bet or two, there is a possible advantage: your gambling losses are eligible for tax-deductibility. Gambling losses cover the actual cost of gambling plus related expenses, such as travel to and from a casino or other gambling institution.

However, there are a few crucial catches. First, unless you are a professional gambler, you must itemize to deduct your gambling losses (itemized deductions are claimed in Schedule A). Unfortunately, most people don't itemize. So if you claim the standard deduction, you will be unlucky twice: once because you lost your bet and once because you cannot deduct your gambling losses.

Second, you cannot deduct gambling losses that exceed your return earnings. For instance, if you win $200 on one bet but lose $500 on a few other bets, you can only deduct the first $200 losses. If you were unlucky and did not profit from gambling during the year, you cannot deduct any of your losses.

You can deduct your gambling losses as business expenses on Schedule C without itemizing if you are a professional gambler. Be careful, however: a company is only qualified as a business if its main object is profit and if you participate continuously and regularly. Occasional activities or hobbies are not considered a business.


Report profit and loss separately.

Gambling losses and winnings must be reported separately. Say, for example, you place four separate $200 bets on four different horses to win a race. If you won $1000 for the single bet you placed, you must report the full $1000 as taxable income. You cannot reduce your gambling winnings ($1000) with your gambling losses ($800) and report only the difference ($200) as income. If you itemize, you can claim a $800 deduction for your losses, but your losses and gains must be treated separately on your tax return.


What about state taxes?

In addition to federal taxes owed by the IRS, many state governments also tax gambling income. Each state has gambling revenue formulas and rules, and some do not charge gambling taxes. Some states charge a flat rate, while others base state taxes on how much you win.


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Dennis Jao
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