Whether people are turning to gambling for something to do, want to increase their finances, or just feeling lucky, the unsuspecting winners not only experience a hefty payday, but they are going to experience the headache when it comes time to file for taxes. With this in mind, we at Mark Dicus & Company would like to offer some insight on how to avoid unwelcome surprises when you pay taxes on the gambling winnings.
Reported Gambling Winnings
Online gambling, slot machines, game shows, bingo, raffles, pull tabs, lottery, horse/dog racing, sport betting, and other gambling activities all need to be reported on your taxes. Any winnings you receive in addition to cash includes, but not limited to, the following list is required to be reported as income. Fair market value of prizes like vehicles, ATVs, boats, household items such as furniture or appliances, or vacation packages. A Form W-2G is required to be given when you win, this indicates a clear indication you participated in a taxable event.
Tax Calculator for Gambling Winnings
While any offsetting gambling losses are reported as a miscellaneous itemized deduction, gambling winnings are reported on one part of your tax return unlike a business. This means:
1) The amounts listed on W-2Gs and any other winnings you had during the year increased your income.
2) You cannot deduct any gambling losses during the year if you do not itemize.
3) You must be able to substantiate any gambling losses with an accurate receipts, diary, tickets, statements and other records when you do itemize.
4) You can never deduct more in losses than winnings.
Additional Tax Tips for Gambling Winnings
Merchandise: Ensure you agree with the market value attributed to the item won if you win a non-cash item. As a promotional technique, it is common that the item is overstated by the game organizer. Request a copy of the invoice that the organizer actually paid for the item. For comparison, print a copy of an advertisement of the item that is offered for less money.
Gambling Losses: For time and date, losses do not need to match winnings. You may only win the big payout once during the year though you played bingo all year long at a locally hosted charitable bingo hall for example. As long as you have accurate records, you can offset your losses against this one win.
Casino Win / Loss Statement: You can ask the casino for assistance when you win in their establishment. To understand and record your costs/losses, they can frequently assist you. If you are frequent to the casino, consider joining the player’s club so they send you a winning/loss statement at the end of each year.
Tax Withholding: To pay for your federal and state tax obligation, make a special savings account and withhold some of the winnings. This helps reduce the sting when you do your taxes. Quarterly estimated tax payments can make a significant difference as well.
Professional Gamblers: Business tax rules apply if you consider yourself a professional gambler. In the eyes of the IRS, you need to have a defensible position. In an effort to take more in expense than they earn in winnings, the IRS often challenges professional gamblers.