If you’re like most people, you dread tax season each year. There’s nothing like the anxiety of wondering if you’re going to owe the IRS. Add to that the stress of figuring out what informationyou’ll need to include and whether it’s coming by mail or electronic delivery, then scheduling time to meet with your tax advisor. Not to mention the added fear of wondering if you’re going tomiss something that will result in penalties and interest, or, even worse, an audit.
If you are a full-fledged, professional gambler who depends on gambling winnings as a livelihood to pay bills and put bread on the table, you report winnings (and expenses, such as meals, lodging, transportation, food) on Schedule C, Form 1040. Only gambling losses. The IRS does not permit you to simply subtract your losses from your winnings and report your net profit or loss. And if you have a particularly unlucky year, you cannot just deduct your losses without reporting any winnings. If the IRS allowed.
All of this can combine to create a real headache. Read on to learn some of the basics regarding your gambling winnings and losses and how they affect your individual income tax return. Evenpossessing some general knowledge on the issue can go a long way to reduce stress. Keep in mind that this material is provided for general awareness. For tax planning and advice and more detailedinformation, check out the links provided throughout this post.
It’s also important to note that the information provided here is for casual gamblers only. Professional gamblers will file Schedule C to report winnings and losses from gambling, and that isoutside the scope of this discussion. Most gamblers will have a hard time classifying themselves as professionals, and there may be some reasons why it would not be considered advantageous to doso.
Without any further delay, let’s take a look at 7 things you should know about gambling and your US individual income tax return.
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Do I have to report my Gambling Winnings to the IRS?
When most people think about their income, they think about their paychecks, their net business profit, their pension or social security income—the money they’ve worked for and that they count on every month to pay their bills and cover their expenses. However, not all income is the product of hard work or financial planning, and sometimes a taxpayer can generate income with the flip of a card or the roll of the dice. When walking into a casino or buying lotto tickets, most taxpayers don’t think about the tax consequences of a hot streak at the blackjack table, or scratching off three cherries in a row and winning it big. The IRS, however, treats gambling winnings as taxable income, which must be reported on a tax return.
Irs And Gambling Winnings
In order to keep track of taxpayer’s gambling winnings, the IRS requires the paying entity (such as the state lotto commission, the casino, or the racing track) to report winnings over a certain threshold. If a taxpayer wins more than $1,200 from a slot machine or in a bingo game, more than $1,500 of proceeds from keno, more than $5,000 of proceeds from a poker tournament, $600 of winnings from any other game where the payout is more than 300 times the wager, or any other winnings subject to tax withholding, he or she can expect to be required to provide identifying information to allow the paying entity to issue an IRS Form W2G.
Interested in learning more about the IRS form W-2G?
When filing his or her tax return, the taxpayer will need to add up all IRS Form W2Gs received in that year, along with any smaller gambling winnings that may not have triggered a IRS Form W2G requirement, and include it as “Other Income” on the first page of his or her IRS Form 1040 return.
2018 Form 1040 Gambling Winnings
There is one bit of good news, however, for taxpayers who enjoy gambling: although gambling losses are normally not tax deductible, they can be deducted up to the amount of gambling winnings in a given year. If a taxpayer spends $500 at the casino, and wins $5,000, he or she will only have to pay taxes on the $4,500 of profit, as long as he or she has proof of the $500 spent. On the other hand, if the taxpayer spent $5,000, and only won $500, there will be no extra tax on the gambling winnings, although the extra $4,500 of loss cannot be used to offset any other non-gambling winnings.
Therefore, it is wise to keep track of your losses as well as your winnings—an unlucky streak early in the year may ultimately allow you to offset later winnings, and reduce your tax liability. Be careful to also hold on to the proof of your losses, in case you are ever called upon to defend the deduction in an IRS audit. For this reason, taxpayers should always keep proof of their losses. Most casinos can provide this information to a taxpayer if he or she has a player’s card. Also make sure to hold on to your losing betting slips and lotto tickets, as they can help mitigate the tax consequences of any winnings in that year. Do keep in mind, however, that the IRS will only accept proof if they believe that the taxpayer him or herself actually suffered the losses—IRS rulings have refused to allow loss deductions based on tickets covered in dirt and footprints, as though they had been collected from the ground after another unlucky gambler had dropped them there.
Community Tax can assist with your IRS Help and gambling winnings. Contact Community Tax today for a free consultation: (800) 444-0622