Gambling is an activity that brings lots of money through luck. If you are winning at gambling, you have every reason to rejoice. The most remote thought that can hit you while you are winning in gambling is about taxes. What has gambling to do with taxes? The IRS believes it does. Your gambling winnings are fully taxable, which means you will need to report any earnings from gambling in your income tax return.
What is included in gambling? What form should I use to report earnings from gambling? Can I use gambling losses as deductions? These are some of the questions that need a quick answer. The IRS explains:
“1. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes such as cars and trips.
2. If you receive a certain amount of gambling winnings or if you have any winnings that are subject to federal tax withholding, the payer is required to issue you a Form W-2G, Certain Gambling Winnings. The payer must give you a W-2G if you receive:
- $1,200 or more in gambling winnings from bingo or slot machines;
- $1,500 or more in proceeds (the amount of winnings minus the amount of the wager) from keno;
- More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament;
- $600 or more in gambling winnings (except winnings from bingo, keno, slot machines, and poker tournaments) and the payout is at least 300 times the amount of the wager; or
- Any other gambling winnings subject to federal income tax withholding.
3. Generally, you report all gambling winnings on the “Other income” line of Form 1040, U.S. Federal Income Tax Return.”
Even though thinking about paying taxes while you are winning at gambling hurts, it works both ways. When you are losing, you have the consolation that you will be able to deduct the losses from your income tax returns. http://content.govdelivery.com/bulletins/gd/USIRS-506ed1 explains how you can claim deductions for your losses in gambling.
“You can claim your gambling losses up to the amount of your winnings on Schedule A, Itemized Deductions, under ‘Other Miscellaneous Deductions.’ You must report the full amount of your winnings as income and claim your allowable losses separately. You cannot reduce your gambling winnings by your gambling losses and report the difference. Your records should also show your winnings separately from your losses.”
Do keep a record of both your wins and your losses. The IRS has not left your company even at the slot machine. The only comfort is that even they want you to win too.