When most people hear the world gambling, they automatically think of Las Vegas and casinos. However, when the IRS thinks of gambling, they refer to all different forms of gambling such as horse races, casinos, sports betting, raffles, and lottery winnings. Additionally, gambling winnings can come in different forms as well. For example, cars, trips, and condos, are all prizes that are considered gambling income, and valued at fair market value . Therefore, the prizes will be listed at a price which the buyer and seller agrees on, hence fair market. The fair market value of the prize will be the amount that is reported on the gambler’s income tax return.
All gambling winnings must be reported to the IRS. It does not matter if you won $1 or $1,000,000, any form of gambling income must be reported on an individual’s tax return as other income. There are penalties and interest that come into play if gambling income is not properly reported to the IRS. To report an accurate amount on your tax return, documents such as payment slips and wager tickets should be kept by an individual when gambling. Payment slips are provided by the gambling establishment whereas wager tickets are tracked by the individual and record how much they are betting personally. When the income is above $600, a Form W-2 G should be issued by the payer. An individual may receive their W-2 G at the time they receive their winnings, or they might have to wait until the payer sends the form. Either way, this W-2 G does need to be signed by the individual stating that the information on the form is accurate. If gambling winnings exceed $5,000, taxes will be withheld, and the recipient may have to pay up to 24% of the winnings towards these taxes.
When it comes to deducting gambling losses, they are limited to the amount that is won while gambling. Therefore, if you lost $3,000 gambling, and won $1,000 of it back, only $1,000 can be deducted as a gambling loss on your tax return under Schedule A. The only amount that can be deducted is the amount spent exclusively on gambling. Therefore, other expenses that played a part in your gambling experience, such as travel and hotel, cannot be deducted. A gambling loss deduction will reduce an individual’s tax liability if there are enough itemized deductions listed under Schedule A of the individual’s tax return. The amount needed to itemize deductions is based on the filing status for the individual taxpayer. Keep in mind, if an individual claims gambling losses, it is important to keep organized records to support such claims. Keep track of your W-2 G’s and the amount of money spent on gambling by saving receipts and bank statements.
Here at ADKF we work together to ensure that our clients are reporting all the information necessary to avoid any penalties and interests. If you have any questions regarding your gambling winnings and losses, please contact us! We would be more than happy to help you.