Gambling income is any money or prizes that you earn from games of chance or wagers on events, including racetracks, raffles, the casino, or the lottery. Gambling income is fully taxable and must be reported on your federal tax return, specifically as other income.
Cash and Non-Cash Winnings
You are required to report any gambling winnings as income, either cash or prizes. For example, if you win a car in a charity raffle, you are required to report the fair market value of that car as income.
Tax on Winnings
Unlike many other forms of income, gambling winnings may be subject to federal income tax withholding at a flat rate of 24%. Gambling income is taxed whether tax is withheld or not.
Reporting of Winnings
Gambling establishments report winnings on a W-2G form (similar to a W-2 for wages) that is given to the winner and sent to the IRS. In general, the Form W-2G is issued if winnings exceed certain thresholds, including $1,200 or more from slot machines or bingo, $1,500 or more from Keno games or $5,000 or more from poker tournaments.
Gambling Losses
Gambling losses can be tax-deductible, but only up to the amount of winnings you report as income. Gambling losses can be reported under “Other Itemized Deductions” on Schedule A (Itemized Deductions) of Form 1040. If you take the Standard Deduction rather than itemizing, you cannot deduct any gambling losses.
You should keep copies of your losing tickets or win/loss statements, since you should be able to prove every gambling loss that you deduct.
Gambling losses can only be reported specifically as losses, and not as reductions in your winnings. For example, if you buy a $20 raffle ticket and win a $500 prize, you must report $500 on Form 1040, not $480.
Professional Gamblers
The information above applies only to gambling winnings and losses for casual gamblers. If you consider yourself a professional gambler, you must file a Schedule C (Form 1040) for your gambling business.
The IRS has strict rules in place for who can qualify as a professional gambler. And unlike casual gamblers, professionals must pay self-employment tax on winnings.
Please contact us for more information about the rules for reporting gambling income and losses, and for assistance in preparing your return at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
