If you’re one of the lucky few that gets the chance to take home a sum of money from gambling, the last thing on your mind would probably be taxes. Not many know this, but any amount you win from the lottery, raffle, poker, or online gaming is considered taxable income so you’ll need to record it on your tax return. To know more about the tax implications and process of claiming your winnings, read more below.
How are gambling winnings taxed?
Any winnings you receive from lotteries, casinos, raffles, horse races, poker, and the like should be reported in your tax return. This includes the fair market value of prizes you receive, like cars, laptops, or trips. The amount of taxes you’ll need to pay will depend on the tax bracket you’re in, so it would be helpful if you keep a record of all of your winnings and spending as you can use your losses to reduce your total tax amount.
A legal establishment is required to give you a Form W-2G if you win the following amounts:
- $600 or more on a horse race (but only if it’s 300 times the wager amount)
- $1,200 or more on a slot machine or bingo game
- $1,500 or more at keno
- $5,00 or more in a poker tournament
The payer will also need to see 2 of your valid IDs and you’ll need to provide your Social Security Number. If not, you can also give them your taxpayer identification number (TIN).
But before you go and flex your skills at a casino, these tax implications are not applicable to table games like blackjack, baccarat, and roulette because winning in one requires some level of skill rather than just plain chance.
How do you report gambling winnings?
When filing your taxes, you’ll need to report your gambling winnings for the year under “Other Income” on Form 1040. No matter how small the amount, you’re still obligated to include it even if it’s not reported by the casino through Form W-2G – this also includes any payout from table games mentioned above.
Are there tax withholdings for your winnings?
If your winnings amount to more than $5,000 and it’s at least 300 times the amount of your wager, 24% of the amount will be withheld as income taxes. This is usually applied to payouts from slot machines, keno, bingo games, and poker tournaments. But if you fail to provide identification or your Social Security Number to the establishment, the tax withholds may increase to 28%.
When preparing your taxes for next year, make sure to indicate the amount deducted as your federal tax withheld so it can be subtracted from the total tax you owe.
Are there penalties for not reporting gambling winnings?
There are currently no legal consequences if you don’t claim your winnings if the annual total is below $1,200. But once the Internal Revenue Service (IRS) finds out that you consistently don’t claim your winnings on your tax returns, you may end up with a court summons or a penalty.
Are gambling losses tax deductible?
Since gambling requires you to take risks, your efforts may not always end up with a win. So if you’ve accumulated a number of losses before winning the big prize money, you can luckily deduct them on your tax return as long as the total is below the amount of the gambling income declared on your return.
To claim these losses, you’ll have to itemize your expenses in Form 1040. Maintaining a record of your winnings and losses throughout the year will ensure you’ll get an accurate amount. You’ll also need to provide any receipts, tickets, or statements as proof for your claim to be valid.
Do senior citizens have to pay taxes on gambling winnings?
You may be qualified for tax relief once you reach a certain age, but if you win a significant payout in a bingo game or lottery, you won’t be exempt from filing it on your tax return. If your prize money reaches a certain amount, the establishment is still required to give you a Form W-2G to report your winnings to the IRS.
Do these tax implications apply to professional gamblers?
If you’re a professional gambler, these tax implications won’t apply to you since your winnings are considered your regular income, and you’ll be taxed at the same rate as a regular income tax. When preparing your return, you’ll also only have to file Schedule C instead of including Form 1040.
If you need help with filing your gambling winnings, you can contact Lear & Pannepacker to get a professional accountant to assist you. Filing your taxes late or getting penalties won’t be an excuse when you’ve got an experienced accountant by your side.
Also Read: How to Stop Overspending in Business
