Posted by Tiffany Gaskin

Tax Tips for Winnings and Losses from Gambling

Tax Tips for Winnings and Losses from Gambling

The gambling industry in America is booming because fresh casinos and sports betting centers are springing up in various parts of the country. People that enjoy gambling know and realize that there is a significant opportunity to make it big. 

For everyone lucky enough to win a bet, do not forget Uncle Sam's cut, no matter how small your winning is. As a result, before spending your jackpot out of excitement, keep the following tips in mind about gambling losses and winnings.


All your winnings must be reported. 

Your winning, whether it is $10 or $6,000 from a casino or a lottery game, must be reported. It will reflect on your tax return as other income. You need to enter this in Schedule 1, line 8 of Form 1040. Winners of a noncash item like a car, a house, or a trip must report the fair market value as their income. 


Form W-2G might be Essential. 

For people who win at least $600, they will get Form W-2G from Uncle Sam, provided what you got is 300 times more than your wager. Bingo and slot machine winnings have the threshold at $1,200; poker tournaments have it at $5000. More information on how to report your earning will be available in Form W-2G.

For payer (casino, sports betting, etc.) that requires Form W-2G, they collect two IDs from the winner. In other words, you will present your photo ID alongside your ITIN or SSN.

There are cases where you might get the Form W-2G immediately. In other cases, the payer should forward the form to the winner by the end of Jan the following year. You will surely get this form if you won a casino game. It, however, might not be the case for wagers. 


Withholding is Essential 

Winners must withhold 24% of their profits as income tax for people that won above 5000 USD on any wager, and the payout is more than 300 times the bet amount. There are, however, other withholding rules for incomes from keno, bingo, poker tournaments, etc. Taxpayers will see this amount in Box 4 of Form W-2G. Winners must attest their signature to the Form W-2G affirming that all information supplied is correct.

In filing Form 1040 the following year, line 17 will have the amount withheld, the federal income tax. This will be removed from the tax owed for the year. Winners must submit their Form W-2G along with their tax returns. 

Winners of the casino should not expect their payer to withhold some money as tax from their winnings. It is the responsibility of the taxpayer to withhold the income. 


Winnings and Losses are Reported Separately 

All your losses and winnings from gambling should have separate reporting. For instance, Walter made three distinct bets of $1000 each. Only one of those bets gave him a payout of $4000. Walter must report the entire $3000 as a taxable income. He cannot reduce his gambling winnings ($4000) by the losses ($3000) and note the difference ($1000) as income. 

On the other hand, itemizing allows Walter to claim a deduction of $3000 for the losses. However, reporting the winning and losses must be done separately. 


Your Records Must be Good

Uncle Sam advises gamblers to have a record of their losses and winnings over a year. It can be a simple record with dates, the specific wager activity, location, name and address of each casino, names of people you were in the casino together, and the amount won or lost. 

It is advisable to keep many items that can prove winnings or losses from gambling activities. This includes all Form W-2G, canceled checks, records from the credit, wagering tickets, statement of winnings, payment slip made available by the casino. 


There is a High Chance for Audits

All gamblers should note that for every Form W-2G that they get alongside their winnings, Uncle Sam also gets a copy. As a result, the IRS will expect the winnings to be claimed on the tax return. Not claiming this will raise some eyebrows. 

Deducting excessive gambling losses can also raise some questions from Uncle Sam. There is a provision for casual gamblers to claim losses as an itemized deduction on Schedule A up until the winning amount. Claiming too much less than compared to winnings will raise questions. 

Taxpayers also need to be smart about how they deduct the loss from Schedule C. Uncle Sam knows the difference between an ordinary hobby and "business" activities. 


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Tiffany Gaskin
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