Going on a fun trip this summer where you’re planning to do some gambling? Whether you like to play slots, blackjack, or bet on races, your gambling winnings are taxable. The IRS requires that all gambling income is reported on your tax return. If you’re a casual gambler, odds are good that these basic tax tips can help you at tax time next year:
1. Gambling income. Gambling income includes winnings from lotteries, horse racing and casinos. It also includes cash prizes and the fair market value of prizes like cars and trips.
2. Payer tax form. If you win, you may get a Form W-2G from the payer (the casino). The IRS also receives a copy of the W-2G. The payer issues the form depending on the type of game you played, the amount of your winnings and other factors. You’ll also get the form if the payer withholds taxes from what you won, though tax is not always withheld.
3. How to report winnings. You must report all your gambling winnings as income. This is true even if you don’t receive a Form W-2G. Gambling winnings for the year are usually reported on your tax return as ‘other income.’
4. How to deduct losses. Gambling losses can be deducted on Schedule A, Itemized Deductions. The amount you can deduct is limited to the amount of the gambling income you report on your return. They cannot be deducted, however, if you do not itemize your deductions or are subject to income level phaseouts.
5. Keep gambling receipts. You should keep track of your wins and losses. This includes keeping items such as a gambling log or diary, receipts, statements or tickets.
Whether you’re gambling on a cruise, in Vegas, or maybe you won a summer sweepstakes, it’s important to keep track of winnings (or losses). The IRS expects taxpayers to report this income on tax returns. Not reporting gambling income on your taxes can create IRS problems, with the possibility of penalties and/or interest for failure to pay tax that is due on your winnings.
When it comes time to file, be sure to mention to your Dallas CPA any winnings, and be on the lookout in your mailbox for a W-2G. Still have questions? Contact us today to meet with a CPA for a tax advising appointment.
