Gambling Winnings Income Taxes

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When luck comes your way, there is always the risk of losing big amounts of money to the government because of taxes. Both professional gamblers and novice players should understand the importance of paying taxes when hitting the jackpot. Under the US regulations, the money obtained from wagering is considered to be taxable income, which is supervised by the IRS. There are many pitfalls when it comes to taxes on gambling winnings. So here, you’ll find the ultimate guide on how to deal with your taxes, the next time you succeed at table games!

Do I Have to Claim Casino Winnings on My Taxes?

By the United States standards, gambling income is fully taxable and should be reported on your tax return. This income includes various types of winnings like:

• Lotteries
• Slots
• Raffles
• Dog and horse races
• Bingo
• Keno
• Poker tournaments and many others

Usually, the gambling income on your tax return should contain cash and the real price of your awards. The size of the win matters, because with regards to that, you’ll find one or several Forms W-2G to fill out. Sometimes, players may have winnings; this refers to the federal incometax. In such cases, you should deal with Form 1040 and report it to IRS under the “Other Income.”

The tax rate for any amount of win is always stable and constitutes 25% of the winnings. In many cases, casinos or lottery providers deduct this amount prior to the payout. However, if you don’t provide the tax ID to the payer, the rate of the taxes withheld will be 28%. Also, the withholding is done when the sum you win or the prize exceeds the $5,000 price, without the price of the bet taken into account. Winnings that are at least 300 times the amount of the original wager should be reported to the IRS as well.

Every bingo or slot machine fan is required to report the sums of any wins that go above $1,200. As for the Keno players, winnings over $1500 should also be included in the tax year reports. Horse racing winnings over $600 or 300 times the bet amount, as well as profits of $5000 or more from poker tournaments, should be on your tax returns too.

For mutual prizes and wins, there is a separate procedure for declaring your income. To complete it, the winners should fill out Form 5754. If the casino has deducted the rate, it will divide the winnings among the players and report them in the W-2G form under the names of both players.

Gambling Losses: to Report or Not to Report?

When it comes to gambling, losses also take a big part of expenses. IRS has also established a procedure for reporting your losses when you file your tax returns. This helps you to deduct your losses and save some money. Only after you show your itemized deductions on the Form 1040, can you can finally deduct your losses.

Losses in gambling are treated as variable deductions from Table A and are not eligible for the 2% limit. Although it may not be possible to deduct all your losses, you can still deduct the gambling losses up to the size of winnings from gambling. For example, if your total win in 2018 was $4,000 and your gambling losses were $4,800, then only $4,000 is taken from your losses.

You should take into consideration the fact that you won’t be able to receive the highest tax benefit from IRS if the itemized deductions are not higher than the standard ones.

Foreigners are also obliged to fill out the forms indicating their winnings if they originate on US territory. There is a special Form 1040NR-EZ for such purposes. The tax rate for winnings is 30%.

Keep the Records

Sometimes it feels like a headache when you try to deal with gambling taxes. Nevertheless, the IRS strongly suggests keeping a record of all your wins and losses. Try to save documents related to gambling, such as receipts, wagering tickets, bank withdrawals, etc. All of these documents play a vital role when the losses are being deducted.

You can also keep note of such information as the date of the gaming activity; type of the game; amounts lost and won; venue credentials and the names of the witnesses, who saw you playing. What’s more, there is a certain algorithm for each gambling activity you need to apply to your record-keeping.

Smaller Wins

There is an obligation to provide information about any winnings. Also, not all of them will be necessary taxed. Remember, that in addition to federal taxes, there are state ones that are also imposed on your income.

The illegal gambling market in the US alone is estimated to be as big as $150 billion a year. This has forced government authorities to open the gates for legalizing profits from such activities by making it necessary to pay tax on them. Even though not everyone is too eager to do so, you are still required to follow the law here. The same requirement applies to sports betting, which is extremely popular in the US.

Online Gambling

As for online gambling, there is no strict procedure for this matter. Usually, it is hard to track profits from online gambling platforms. Nevertheless, there is always an opportunity to reflect the earnings on the form, even though there might be some difficulties in showing the time and source of the winnings.

Top Questions Regarding Gambling Taxes

Income taxes force many potential players to surf the Internet for the answers to the questions that bother them when winnings come their way.

• How much do you have to win at the casino to pay taxes?

This depends on the type of game you won. For instance, for horse racing, the amount to report is $600; for slots machines, it is $1,200; and for Keno, it’s $1,500. Anyway, you have to declare all the profits that you have earned over the year, regardless of the amount.

• Do casinos report your winnings to the IRS?

Casinos don’t report player wins to the IRS. Nevertheless, if you win in a brick-and-mortar casino, a tax deduction will be made from the jackpot.

• Do you have to pay taxes on slot machine winnings?

There is an obligation to include your winnings from a slot machine in the Form W-2G. The sum of money should be equal to or bigger than $1,200.

• Can I claim casino losses on my taxes?

Yes, you can. Losses are deductible; however, there is no guarantee you’ll get the full advantage of your tax benefits.

• Do casinos keep track of your winnings?

There is a slim chance that the casinos could keep 100% track of your wins to report it to the IRS. Anyway, they can still gather information for their own purposes.