The safest way to double your money may be to fold it over and put it in your pocket, but the fun to be had from casual games of chance is very alluring to many people. If you like to occasionally try your luck with a wager, make sure you are aware of some important tax consequences.
Remember, all income, unless on a very short list of exceptions, should be reported on the tax return. Gambling income is not an exception, so all winnings should be reported as income. Some folks mistakenly think they can net their losses against their winnings, but this is incorrect. We’ll deal with losses later, but for now you should know that all gains are reportable.
Depending upon the type and amount of the wager, a winner may receive a form W2-G from the casino. However, if winnings fall below the limits to trigger a W2-G they are still supposed to be reported. Large payouts are often subject to tax withholding, which will also be reported on a W2-G. Don’t forget that winnings may create a filing requirement for the state where the gaming establishment does business, even if that is not your home state.
Losses are deductible only to the extent of winnings, figured on a yearly basis. In other words, if you win $100 playing blackjack and then lose $100 at the slots the same day, you can’t net that out to zero and forget about it. At year-end, you may be able to deduct total losses but only to the extent of winnings and only if you itemize. For more information, see the IRS fact sheet on gambling income and losses here.
Because most taxpayers no longer itemize, very few will qualify to deduct gambling losses. That means in the scenario above, the taxpayer taking the standard deduction instead of itemizing should report $100 of gambling income and will not have any deductions to take against it. However, since you never know when you’ll hit the jackpot, it’s a good practice to keep a detailed log of all gambling-associated wins and losses.
Professional gamblers and session gamblers have different rules and more detailed record-keeping requirements, so anyone falling in that category should seek advice from a tax professional. Casual bettors, on the other hand, should know that being taxed is the price they may pay for indulging in a game of chance every now and then. Keep a good record book alongside your 4-leaf clover, and may the odds be ever in your favor!
Comments