Yes, Your Gambling Winnings Are Taxable: Here's What You Need To Know

Yes, Your Gambling Winnings Are Taxable: Here’s What You Need To Know

Yes, Your Gambling Winnings Are Taxable: Here's What You Need To Know

Many gamblers are unaware that Uncle Sam wants his share of their winnings. When you win cash while playing slots or betting on the horses, you must report it as “other income.” If you win non-cash prizes like luxury vacation packages or cars, you have to report their monetary value. You have to report every cent you win while gambling.

So, luck was on your side and you’ve managed to win some dough by gambling online. As much as you may rub your hands in glee, planning how you’re going to spend your casino winnings, you may be (unpleasantly) surprised to discover that those figures are not final and are taxable by law. Yes, you read correctly.

So, whether you’ve managed to bag a win through a no deposit bonus or by hitting the jackpot when playing your favorite slot, you need to read the following points carefully.

IRS Form W-2G

If you win $600 or more or 300x your bet amount, you must complete the IRS Form W-2G. The taxable winnings are $1200 (bingo and slots), $1500 (keno), and $5000 (poker tournaments). You also have to provide copies of two identification documents to the betting shop, online casino, or racetrack. 

While playing at a land-based facility, they will give you the W-2G form. However, online casinos say that you are responsible for reporting your winnings to the tax authorities.

Withholding and Deducting

If your winnings on a bet exceed $5000 or 300x your bet amount, the payer has to withhold 24% of your prize as income tax. The payer will mention this amount in the W-2G form (Box 4). 

When you file your tax returns the following year, you must include the withheld amount and the tax authorities will subtract it from your total tax amount. You also have to attach the W-2G form to your tax returns. 

What happens if you do not win a lot of money? 

You may claim tax deduction on your gambling losses. But you will have to itemize to claim such deductions. 

Also, you cannot claim deductions on losses exceeding the winnings you report in your tax returns. For example, assume that you won $100 on one bet and lost $300 on the other bets. You can claim tax deduction only on $100 of the total amount you lost. 

If you did not win any prize, you cannot claim deductions on losses.

Report Both Wins and Losses

You must report both wins and losses separately to claim tax deductions on losses. 

For example, assume that you made four bets of $100 and won $500 on only one of them. You have to report your full winnings of $500. You cannot deduct your losses of $400 from your $500 win and report only $100. 

You can claim a deduction on your losses of $400 if you itemize, but you should mention your wins and losses separately.

Maintain Good Records

You also have to keep track of your losses and wins throughout the year. Maintain records of your gambling activities, including dates, amount wagered, games played, names of gambling establishments and fellow gamblers, and the amount you lost and won. 

Keep W-2G forms, canceled checks, wagering tickets, bank withdrawals, credit records, payment slips, and statements of wins and losses because they serve as proof. 

When the casino gives you a W-2G form, a copy goes to the IRS. So the tax authorities expect you to report those winnings on your tax return.

Local and State Taxes

W-2G forms have separate boxes for reporting losses and winnings at the regional and state levels. You have to pay taxes to the local and state governments also. 

Generally, your state taxes your gambling winnings. But if you gamble in the neighboring state, that state will want a cut, and the casino may deduct the tax before paying you.

However, your state will not tax you again. Instead, you will receive credit for the tax you already paid to the other state.

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