Posted by Thomas G Kinsella, ATP

Essential Things to Know About Gambling Winnings and Taxes

Essential Things to Know About Gambling Winnings and Taxes

Gambling to you might simply be a hobby you enjoy to pass the time or making some extra bucks. However, you need to fulfil your end of the bargain when it comes to tax time, as Uncle Sam also wants its share. 

About 67% of Americans gamble, based on research from a 2016 poll. Even though one might think winning a couple of dollars from your scratch ticket is not a big deal, the federal government believes that it should receive its share from every dollar you win. 

This makes it essential to know and understand how to report all your gambling winnings, things you will include, and how to transform your loss into something that will favour you. This article will explore a couple of essential things to know about gambling winnings and taxes:


  1. All Winnings Needs to be Reported 

You might get a form W-2G that will outline your gambling winnings, even though it is a factor of what you won in the year. Even if you do not receive the form, you will still have to report the winnings as other income on your tax return. 

Even non-cash winnings will be taxed alongside the entire cash winnings and must be reported on your return as other income. These are winnings from casinos, raffles, lotteries, and horse races. Non-cash winnings like prizes such as vehicles, electronics, or trips are also classified as taxable income and taxed, judging by the market value. 

For you to keep track of both the losses and winnings, you need an accurate record of the following when you gamble:

  • The type of your gambling activity and date

  • The location and name of the gambling facility 

  • What you lost or won 

  • Details of people that were with you then

  • Other documents like bank statements, related receipts and payment slips. 


  1. Gamblers can Deduct Some Losses.

Losses from gambling do not sit well with many people, so gamblers do not like to talk about it. However, honesty can lead to significant savings when it comes to taxes when you consider that you can deduct some gambling losses, as permitted by Uncle Sam.

While you might not be able to deduct all the losses, it is possible to deduct gambling deductions up to the value of their gambling winnings, provided they go through the itemizing route.

For instance, consider a gambler that lost $6700 for the year and won a total of $6000. Such a gambler can only deduct $6,000 from their losses. Taxpayers should note that if they itemize things like charitable donations, medical expenses, home mortgage, and the sum is less than the standard deduction value, you might be better off considering the standard deduction. 


Is Deduction for Gambling Addiction Recovery Program Allowed?

Based on IRS Pub 502, taxpayers can deduct drug and alcohol-related addiction recovery programs because they qualify for a deduction for medical expenses. This, however, does not include gambling addiction. 

People that need help with gambling assistance should get in touch with the gambling addiction assistance by contacting the Substance Abuse and Mental Health Service Administration.

 

  1. You will pay taxes on winnings from Illegal Gambling 

Records from the American Gambling Association reported that Americans spend over $150 billion on illegal gambling every year, like sports betting and casinos.

While the US Supreme court ruling has advised states to make sports betting legal, not all states have done so. As a result, all your winnings from gambling, whether legal or illegal, will be taxed.


Conclusion 

Every dollar you get from gambling can be taxed, whether legal or illegal. This makes it essential to have a record of your winnings and losses for accurate reporting. Your losses will come in handy in qualifying you for tax breaks.


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Thomas G Kinsella, ATP
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