Gambling Income and Losses – Tips for Tax Returns

Posted on Mon, Aug 18, 2014 ©2020 Drucker & Scaccetti

The Tax Warriors® practice their craft in a region full of gaming houses.  Delaware, New Jersey and now Pennsylvania all have a significant footprint in the gambling industry on the east coast. So it behooves us to know the ins and outs of how gaming winnings and losses may affect tax returns. These states also participate in the Powerball lottery in addition to having their own individual lottery drawings and various horse racing venues.  Delaware even has sport wagering.

 

Needless to say, the opportunity to press your luck in the Mid-Atlantic region abounds. Whether you like to play the ponies at Dover Downs, roll the dice at Borgata or pull the slots at Sugar House, your gambling winnings are taxable. The law says you must report all your gambling income on your tax return. The high roller most likely knows how to handle the reporting, but if you’re a casual gambler, these basic tax tips from the IRS may 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, Certain Gambling Winnings, from the payer. The IRS also gets 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.

3. How to report winnings.  You must report all your gambling winnings as income. This is true even if you do not receive a Form W-2G. You normally report your winnings for the year on your tax return as ‘other income.’

4. How to deduct losses.  You can deduct your gambling losses on Schedule A, Itemized Deductions. The amount you can deduct is limited to the amount of the gambling income you report on your return.

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, gaming account statements or tickets. 

 

We’ve addressed gambling and taxes extensively in previous blogs. Last year, we discussed the need for a family contract for a large lottery payout, and information on how the IRS cannot tax gambling winnings for nonresident aliens. This year, we talked about betting on the Super Bowl (and sports betting in general) and its tax implications as well as the more recent topic of online poker winnings being included in FBAR reports.

 

Though to most people the nature of gambling is a recreational endeavor, its tax and income implications can be quite significant for some, especially those who gamble for a living (e.g., professional poker players). Whether your winnings or losses are what you would consider “significant” or not, you should keep track of your gambling activities each year and discuss them with your tax advisor. Like all income and expenses, documentation is necessary to support your claims.

 

At Drucker & Scaccetti, we have decades of experience dealing with the taxation of gambling winnings. Our highly skilled team of knowledgeable advisors are here to help you understand the intricacies of the tax code and ensure you are compliant with reporting requirements.

 

Contact us via the “Ask A Tax Warrior” button below to discuss your gambling activities and how they may impact you from a tax perspective. We are always prepared to help you with this or any other tax-related matter.   

Topics: income, Gambling, poker, gaming, casino, Form w-2G, Sugar House, Parx, Harrahs, slots, horse racing, blackjack, craps, roulette, Tax, Taxes

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