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Dealing with the IRS may always be somewhat of a gamble, but instead of rolling the dice, the IRS wants you and your clients to know that as a casual gambler, your gambling winnings are fully taxable, and must be reported on your income tax return. However, you can deduct your gambling losses…but only up to the extent of your winnings.
Here are some important tips from the IRS:
- Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races and casinos. It also can include cash winnings and the fair market value of prizes such as cars and trips.
- If you receive a certain amount of gambling winnings, or if you have any other winnings that are subject to federal tax withholding, the payer must issue a Form W-2G, Certain Gambling Winnings. The payer must give you a W-2G if you receive:
- $1,200 or more in gambling winnings from bingo or slot machines;
- $1,500 or more in proceeds (the amount of winnings minus the amount of the wager) from keno;
- More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament;
- $600 or more in gambling winnings (except winnings from bingo, keno, slot machines, and poker tournaments) and the payout is at least 300 times the amount of the wager.
Generally speaking, all gambling winnings should be reported on the “Other income” line of Form 1040, but there is also some good news: You can claim your gambling losses up to the amount of your winnings on Schedule A, Itemized Deductions, under ‘Other Miscellaneous Deductions.' You must report the full amount of your winnings as income, and claim your allowable losses separately. You cannot reduce your gambling winnings by your gambling losses and report the difference. Your records should also show your winnings separately from your losses.
As with all tax matters, the IRS reminds you to keep accurate records. In order to deduct gambling losses, you must have receipts, tickets, statements and other documentation such as a diary or similar record of your losses and winnings.
Note that these rules may differ from those for professional gamblers, such as those who are engaged in the trade or business of gambling.
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