There are only two things that can possibly happen when you’re gambling; its either you win or you lose. But even those who win won’t be able to take home everything because they still have to pay their taxes. Any amount of money you win from gambling or wagering is considered an income which means it will need to be taxed by the IRS. Your taxable winnings don’t just end from card games and casinos but also in racetracks, game shows, lotteries, and Bingo. It may sound awful to not get every penny you won out of luck which you’ve also prayed for, but don’t worry! There are special rules that can be applied and your losses can be deducted from the taxable income too.
To help you better understand how taxes work on your casino winnings, here are the five important things you should bear in mind before you find a tax preparer.
1. Keep Your Gambling Records. It’s important that you keep your gambling records updated at all times with the complete information required by the IRS. Related documents such as receipts, tickets, payment slips, statements, Form W-2G, and Form 5754 will be collected from you to prove your winnings and losses. These documentations will help the IRS verify the gambling activity so make sure you give them to your Accountant. Here is the following information you need to record on your diary whenever you’re out and about gambling:
• Date
• Type of gambling engagement
• Name and Address of the gambling place
• Names of the people you gambled with
• Specific amounts of your winnings and losses.
2. The Amount of Tax You Need to Pay. A flat rate of 25% federal taxes is withheld if your winnings are reported on a form W-2G. You will be given a copy of the form indicating the amount you won and the amount of tax withheld. On the other hand, sources of your winnings over $5,000 or at least 300 times the amount of the bet are both subject to an income tax withholding rate of 28%.
Don't forget to ask the payer to provide you a Form W-2G if you win the following:
• $600 or more if the amount is at least 300 times the wager
• $1,200 or more in bingo or slot machines winnings
• $1,500 Keno winnings
• $5,000 or more for Poker Tournament Winnings
•Any winnings subject to a federal income-tax withholding requirement
3. Deduct Your Gambling Losses. You can only deduct your losses from gambling if you ask your Tax Preparer to itemize your deductions. Reporting of your winnings and losses shall be prepared separately instead of adding them all together. You can deduct your losses only up to the amount of the total income you earned. To put it simply, if you earned $5000 from gambling but lost $7000, you can only include $5000 in your itemized deduction. The remaining $2000 will not be written on your report.
4. Know Your Tax Rate If You’re a Professional Gambler. The Gambling Income of a Professional Gambler will be treated differently than that of an occasional gambler. If you consider gambling to be your permanent source of income, you will be taxed with a regular income tax rate. You will be required to report your income and expenses as a self-employed individual on Schedule C. Your gambling losses will be deducted as job expenses in Schedule C instead of Schedule A. Examples of costs you can deduct are:
• Magazines, periodicals, or any data you used as a professional gambler.
• A portion of your Internet bill if you wager online;
• Travel and food expenses when attending gambling tournaments
5. Visit Your Tax Preparer to Report Your Gambling Income and Losses. As soon as you have everything ready, visit a trusted Tax Preparer to work on your tax return. You will be asked questions and will request the records you have already prepared. The good thing about having an Accountant, is that you no longer have to worry about which forms you need to fill out, gets the tax preparation process fast and easy, and minimizes the possibility of errors. Let your Tax Preparer handle everything for you and focus more on your gambling strategies instead.
