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Winning Big: Tax Tips for Gamblers and Gamers

April 24, 2017

Be prepared for your next win with these tax tips.

It’s worth noting that regardless of how large the purse is, when it comes to lotteries, gaming, and gambling, few people consider the tax consequences prior to winning. Depending on the size of the prize, what might seem like nothing more than a fun distraction actually carries significant tax consequences for winners. As is often the case, the federal and state governments single out casino winnings for unique taxes of their own. Failure to properly report your winnings can result in serious penalties.

Follow these rules to stay on the safe side:

Gamblers are lucky in that casino taxes are not progressive like income taxes are. That is, you will owe the same percentage to the IRS on a $100,000 jackpot as one worth $10,000. It’s important to know the thresholds that require reporting. As Bankrate.com explains, winnings in the following amounts must be reported:

  • $600 or more at a horse track (if that is 300 times your bet)
  • $1,200 or more at a slot machine or bingo game
  • $1,500 or more in keno winnings
  • $5,000 or more in poker tournament winnings

All of these require giving the payer your Social Security number, as well as completing IRS Form W2-G to report the full amount won. In most cases, the casino will take 25 percent off your winnings for the IRS before even paying you. Don’t get any crafty ideas about cutting Uncle Sam out of the transaction, either. According to Bankrate.com, this entitles the casino to withhold up to 28 percent of your winnings.

Reporting smaller winnings.

Even if you do not win as much as the amounts above, you are still legally obligated to report. This is done on Line 21 (“Other Income”) of Form 1040. This is also where you would report any awards or prize money you won during the year in question. Yes, even if you only win $10, you still technically have to report it (even if the casino didn’t). Gambling income plus your job income (and any other income) equals your total income. Fortunately, you do not necessarily have to pay taxes on all your winnings.  Instead, if you itemize, you can offset taxes owed on your winnings by reporting any losses you incurred as well. This would be done on Line 28 (“Other Miscellaneous Deductions”) on your Schedule A. You are allowed to claim as much as the total amount won that appears on your 1040, which would eliminate your taxable gambling income. Just be sure any deductions taken this way (in combination with other itemizations) are higher than the standard amount. Otherwise, it would make more sense not to itemize, even if it meant foregoing your gambling loss deductions. Gamblers often inquire about taxes on money won at an Indian casino. Some assume that because Indian reservations have unique tax arrangements with the federal government, this somehow must extend to gamblers on their property. Sadly, that is not so. The IRS does not care if you won the money on Indian land, the Las Vegas strip, or anywhere in between.

What about state taxes?

In addition to federal taxes payable to the IRS, many state governments tax gambling income as well. Unfortunately, states have their own unique formulas and rules for gambling income. Some levy no gambling taxes at all. Others charge a flat percentage, while still others ramp up the percentage owed depending on how much you won. When in doubt about any taxes you may be obligated to pay on your winnings, please refer to your own state’s policies or check with our office.

Source: Intuit.com via Advantage Magazine March-April 2016 issue. Edited.

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