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Tax Advice on Casino Winning and Losses

Tax Advice on Casino Winning and Losses

The American casino industry is booming. New casinos and sports betting are popping up across the country, Las Vegas is booming, lotteries are popular, and online gambling is great. Of course, there are plenty of opportunities to place a bet if you like to gamble. And if this is your place, we hope you will come out a winner.

However, if you are fortunate enough to win some cash in a casino or a smart bet, remember that Uncle Sam wants his share as well. So, before you end up spending your jackpot winnings, here are some things to keep in mind regarding casino taxes.


You must report all winnings.

Whether it's $5 or $9,000, on the track, a casino, or at a gambling site, all gambling winnings must be reported on the tax return as "other income" at Schedule 1 (Form 1040). If you get lucky and win a non-cash prize, such as a car or travel, report the fair market value as income.

And be sure to report any winnings from the game. If you win $200, enter $200. The IRS doesn't look for small winners, but you still don't want to think of yourself as a tax con artist.


Keep Good Records

To help you keep good track of how much you've lost or won over the course of a year, Uncle Sam suggests keeping a journal or similar record of your gambling activities. Your records should include at least the dates and types of specific betting or gambling activities, the name and address of each casino or racetrack you have visited, and the names of other people who have followed you to each casino site, and the amount you lost or won.

Also, you should keep other items as proof of winnings and losses from the game. For example, keep any W-2G forms, game tickets, canceled checks, credit records, bank withdrawals and winnings summaries, or payment slips provided by casinos, racetracks, or other gaming units.


You can get a W-2G form.

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

If a W-2G is required, the dealer (sports bet, casino, racetrack, etc.) will need to see two pieces of identification, of which one must be a photo ID. Also, you will be required to provide your SSN (social security number) or, if you have one, an individual tax identification number.

In some cases, you will receive W-2G on site. Else, for this year's winnings, the payer must send you the form by January 31, 2022. In any case, if your bet was in a casino, we are sure you will receive W-2G. But if you place a friendly bet with a colleague or friend or you won an office pool, well, don't count on it.


Audit risks may be higher.

If you receive a W-2G form with your gambling winnings, keep in mind that the Internal Revenue will also receive a copy of the form. Therefore, the IRS expects you to claim these earnings on your tax return. Otherwise, the taxman will not be happy about it.

Deducting big gambling losses can also trigger red signals to the IRS. Please note that casual players can only claim losses in the form of deductions detailed in Schedule A. It's a disaster for IRS auditors if you report more losses than gains.

Be careful about deducting losses from Schedule C. The IRS is always looking for so-called "business" activities that are really just hobbies.


Withholding may be required.

As a rule of thumb, if your winnings exceed more than $5,000 on a bet and the payout is at least 300 times the value of your bet, the IRS requires the payer to withhold 24% of the winnings in income tax. (Special withholding rules apply to winnings from bingo, keno, slots, and poker tournaments.) The amount withheld will appear in box 4 of the Form W-2G you will receive. You will also be required to sign a W-2G stating that the information on the form is correct under penalty of perjury.

When you file 1040 for the following year, include the amount withheld as federal income tax withholding. It will be deducted from the tax due. You will also need to attach the W-2G Return Form.

Again, this is what to expect when betting on a legally operated casino, racetrack, or other gambling company. Don't expect your friend or your colleague who runs an office pool to provide withhold taxes (although technically he should).


Your losses may be deductible.

Was it a bad night at the table, or did you choose the wrong horse to win? There is a clear argument if you lose a bet or two: gambling losses may be tax-deductible. (Gambling losses include the actual cost of gambling plus related expenses, such as a trip to a casino or other gaming unit.)

However, there are significant catches. Unless you are a professional gambler, you must itemize in deducting gambling losses (itemized deductions are required in Schedule A). Since the 2017 tax reform law significantly doubled the standard deduction, most people will no longer be itemizing any more. Therefore, if you go with a standard deduction, you are twice unlucky: once because you lost your bet and because you cannot deduct your gambling losses.

Secondly, you cannot deduct gambling losses that exceed your return winnings. For example, if you win $200 on one bet but lose $400 on others, you can only deduct the first $200 from losses. You cannot deduct any losses if you were unlucky and had absolutely no gambling wins during the year.

If you are a professional gambler, you can deduct your losses as a business expense on Schedule C without itemizing it. However, one caveat: a business is only considered a business if its primary purpose is to make a profit and you participate in it on an ongoing and regular basis. Occasional hobbies or activities are not considered a business.


Report Losses and Winnings Separately 

Gambling wins and losses must be reported separately. For example, suppose you placed four separate bets of $200 on four different horses to win a race. If you won $900 on the one winning bet, you must report a total of $900 as taxable income. You cannot reduce your gambling winnings ($900) with your gambling losses ($800) and only report the difference ($100) as income. If you itemize it, you can claim a deduction of $800 for your losses, but your gains and losses must be treated separately on your tax return.


State and local taxes may apply.

If you take a closer look at Form W-2G, you will see boxes for reporting state and local income and withholding taxes. This is because you may also need to pay state or local taxes for your gambling winnings.

The state you live in generally taxes all of your income, including gambling winnings. However, if you travel to another state to place a bet, you may be surprised to learn that the other state wants a share of your winnings as well. And the state can withhold taxes from your payment to make sure they pay off what you owe to them in taxes. However, double taxation will not occur. The state where you live must give you a tax credit for the taxes you pay in the other state.

You may or may not deduct gambling losses from your tax return. Check with the state tax department for the rules you live by.


Consult a tax expert

Paying gambling taxes is never fun. At least now you understand how the game of paying taxes on gambling wins and losses works in general terms.

The good news is that most people who itemize deductions only pay their taxes when they make more money than they lose from gambling.

Unfortunately, those who take advantage of the standard deduction are often forced to pay taxes on their winnings without deducting their stakes.

Contact your tax expert for advice on your specific situation. Your tax consultant can tell you if your recordkeeping is sufficient to meet IRS standards. They can also help you plan to reduce the total amount of tax owed under applicable tax laws.


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