5 Tax Tips for Gambling Winnings and Losses
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The gaming Industry is booming. There are new agreements from professional sports stadiums and arenas. Not to mention that the popularity of the lottery has not waned. There are plenty of opportunities to drop a bet if gambling is your thing.
So, you win that parlay or hit the numbers on the Cash 5; we cannot forget that Uncle Sam wants his cut. So before you've spent all the winnings, here are 5 tips to remember about gambling and taxes.
- Report all of your winnings
Whether it's $10 or $10,000, all gambling winnings must be reported on your tax return. If you win a non-cash prize such as a trip or vehicle, you must report the fair market value as income. If gambling winnings are more than $500, you will receive an IRS Form W-2G, so be on the lookout for that form. - Withholding May be Required
If you win more than $5,000 on a wager and the payout is at least 300 times the amount of your bet, the IRS requires the payer to withhold 24% of your winnings for income taxes. There are special withholding rules for bingo, keno, slot machines, and poker tournaments. - Loses May be deductible
There may be a silver lining to a bad night at the roulette table or picking the wrong team to win. Your gambling losses might be deductible. Gambling losses calculation is below:
(the actual cost of wagers) + (related expenses"*)
** related expenses include travel to and from the gambling establishment.)
There are a few things to keep in mind.- Unless you're a professional gambler, you have to itemize in order to deduct gambling losses. Unfortunately, most people don't itemize, so let's be clear: DO NOT claim the standard deduction. or you will have lost a bet and the ability to deduct your gambling losses.
- You can't deduct gambling losses that are more than the winnings reported on your return. For example, if you won $100 on one bet and lost $300 on a few others, you CAN only deduct the first $100 of losses. And, if you had absolutely no gambling winnings for the year, you CANNOT deduct any of your losses.
- If you're a professional gambler, you can deduct your losses as business expenses on Schedule C without having to itemize. However, an activity only qualifies as a business if your primary purpose is to make a profit AND regularly involved in it (like as a job). Sporadic activities or hobbies do not qualify as a business.
- Report your winnings and losses separately. For example, if you made four (4) separate $100 bets and won $500 on one of them, you must report the $500 as taxable income and claim a $400 deduction for your losses. You cannot reduce your gambling winnings by reporting the difference between winnings and losses.
- Keep good records
The IRS recommends keeping a diary or something similar to track your gambling activity. Contact BOSS Taxes for a gambling log template that you can use immediately. Keep all items as proof of gambling winnings and losses. For example W-2G forms, wagering tickets, bank withdrawals, payment slips, canceled checks, etc. Because many people deduct large gambling losses, red flags can be raised and the audit risk may be higher. REMEMBER: The IRS is always looking for people not reporting a form (i.e. W-2G) or "business activities" that really are hobbies. - State and Local Taxes
The form W-2G has boxes for reporting state and local winnings and withholding. That's because you may owe state or local taxes on your gambling winnings.
The state where you live generally taxes all your income — including gambling winnings. However, the state that you travel to gamble, wants to tax your winnings. They can withhold the tax from your payout to make sure the State gets paid what they're owed. Fortunately, you won't be taxed twice. The state where you live should give a tax credit for taxes paid to another state.
Hopefully, these five (5) tips will provide some guidance on how to handle taxes and gambling. If you need any more information, schedule an appointment with one of our tax professionals and they will help guide you in the right direction.
Cheers.
