Do you know that your winnings while playing at online casinos or at lotteries or any other sports that you wager and gamble for play are taxed? If you play daily or even not so frequent you need to know about Federal Income Taxes and how they cover taxes for gambling.
You must have won many times at the casino but may not have thought or known to declare the winnings too as a taxable income. Remember the IRS expect you to report all your winnings along with all your losses (to the extent of your winnings) on your tax return. This is because what the US tax laws says.
Don’t be surprised to know that if you win a jackpot for $1,500 or more, the casino takes down all your personal details and forward that information as well as the amount you have won on to the IRS on form W-2G and send a copy to you as well. So let us understand all about US gambling taxes and what you need to be aware of while playing or gambling at casinos or elsewhere.
Understanding Gambling Tax Laws
- Gambling winnings are taxed by both the IRS (Internal Revenue Service) and by many states in US
- All winnings from all forms of gambling are taxable and must be declared as income on your tax return.
- All losses from all forms of gambling are deductible as an itemized deduction for recreational players, limited to the amount of winnings declared.
- Professional gamblers hold file as a self-employed business using Schedule C Form or now called as Form 1040
- The value of “comps” received also considered to be gaming winnings and should be included in your total winnings. This does allow you to deduct gaming losses to offset the income from the “comps.”
- Wins and losses are reported only in the year they occur. Excess losses cannot be carried forward or back to offset winnings in other years.
- Married couples filing a joint return must combine their winnings and combine their losses, and report only one figure for each.
- The IRS has issued instructions that “lumping” is unacceptable. “Lumping” is the practice of reporting one net win figure and no losses, or reporting nothing if your net from gambling is a loss. You must report the total of your winning sessions separately from the total of your losing sessions.
- The IRS requires that an accurate diary or similar record must be maintained for substantiating your wins and losses, and that the diary should contain at least the following information: (1) the date and type of your specific wager; (2) the name of the gaming establishment; (3) the address or location of the gaming establishment; (4) the names of the other person(s), if any, present with you; (5) the amount(s) you won or lost.
- The IRS also requires that in order to substantiate your daily input in record, supplemental records including the following (these records are not to be submitted with your return, but will be needed should you be audited): (1) W-2Gs; (2) wagering tickets or receipts; (3) cancelled checks; (4) credit card records such as cash advances; (5) bank withdrawals; (6) any receipts provided by the gambling establishment should be kept safe.
Gambling has become such big business that the IRS receives nearly four million Forms W-2G and 5754 each year. This tells the tax-collectors that nearly four million big winners are out there, waiting to be taxed.
IRS Form W2-G
The Form W-2G reports income and withholdings related to gambling. Generally, you will receive a Form W-2G if you receive:
- $600 or more in gambling winnings and the payout is at least 300 times the amount of the wager (except winnings from bingo, keno, and slot machines)
- $1,200 or more in gambling winnings from bingo or slot machines
- $1,500 or more in proceeds (the amount of winnings less the amount of the wager) from keno
- Any gambling winnings subject to federal income tax withholding.
Gambling winnings are fully taxable and must be reported on your tax return.
Here are the top seven facts the Internal Revenue Service wants you to know about gambling winnings.
- Gambling income includes – but is not limited to – winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other non-cash prizes.
- Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment.
- The full amount of your gambling winnings for the year must be reported on line 21 of IRS Form 1040. You may not use Form 1040A or 1040EZ This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form.
- If you itemize deductions, you can deduct your gambling losses for the year on line 28 of Schedule A, Form 1040.
- You cannot deduct gambling losses that are more than your winnings.
- It is important to keep an accurate diary or similar record of your gambling winnings and losses.
- To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses. Gambling losses are reported to the taxpayer on Form W2-G.
W2-Gs are not requirefor winnings from table games such as blackjack, craps, pai gow, baccarat and roulette, regardless of the amount.
The withholding rate for non-resident US is 30% and the tax rate for non-resident US is also 30%. So, if a citizen of a foreign country wins $1 million cash at a slot machine in Las Vegas, he will find he is only paid $700,000. The remaining $300,000 is sent to the IRS. The foreign citizen is unlikely to ever file an income tax return, but the IRS gets paid in full anyway.
Winning Money at an Indian casino
The IRS does not care if you won the money on Indian land, the Las Vegas strip, or anywhere in between. If the casino hands you a W2-6 or 1099, the IRS got one too. Technically, this applies even at an illegal gambling hideout in someone’s basement. You are legally obligated to report income from illegal activities as taxable income.
The 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, refer to your own state’s policies before gambling.
The one good news is Nevada casinos were able to convince the IRS that they could not keep track of players at table games. They said that when a player cashes out for $7,000, they do not know whether he started with $25 or $25,000. So it is actually written into the law that there is no withholding or even reporting of big winnings to the IRS for blackjack, baccarat, craps, roulette or the big-6 wheel.
Professional and Amateur Player
As a professional gambler, you have to pay taxes whether you are a poker, slots, or craps player, or you prefer to bet on horse racing. However, one of the primary differences between the professional and the casual amateur is that professional gamblers can deduct expenses. If you enjoyed your stay in Atlantic City, or the penthouse in Vegas remember lodging that was compensated or “comped” doesn’t count. Only those items that you actually pay for are allowed as tax deductions.
Items Professional Players Can Claim as Deductions
- Items that are “ordinary and necessary”
- Online training sites
- Poker materials and coaching
- Flights and other transportation
- Hotel rooms (but not if comped)
- Registration fees
- Technology necessary to play online
- A portion of your residence, if you can show that you work from home (online)
- Gambling losses (but losses cannot exceed winnings)
Knowing if you are Professional Gambler or Casual Player
According to United States Federal law, gambling activity can be considered a trade or business if it is pursued full time, in good faith, and with regularity to make income for a living, and not merely as a hobby. Professionals should claim winnings, losses, and expenses on the IRS Schedule C form.
The factors that determine whether your play qualifies you as a professional gambler are the period of time and effort spent at playing, your amount of profits compared to time spent , your expectation that the investment will lead to appreciation in value, your expertise and level of ability and the signs that the activity is not exclusively for pleasure
Casual Amateur Gambler
Unlike the professional gambler who uses their skills at gambling as their primary source of income, the casual amateur enjoys the game for pleasure and the rewards that come as a result of their play. While professionals can deduct expenses as outlined earlier, the casual participant is only allowed to claim losses along with claiming wins. It is important to remember that losses cannot exceed wins, but wins can exceed losses.
Items that are comped should be included as income for professional players and frequent casual players
For taxpayers who are non-professional gamblers:
- You must be able to substantiate any losses claimed. This is when a player card comes in handy, as casinos will keep track of the wins and losses associated with it.
- Casual gamblers need to itemize deductions in order to capitalize on deducting their losses.
- Gambling losses are deductible only to the extent of gambling winnings reported on line 21 of IRS Form 1040.
AGI: Adjusted Gross Income
You do want your income increased and that is until you have to pay taxes on it. Winnings will increase a taxpayer’s AGI. But, sadly, because the winnings are added in first, they will increase your tax rate regardless of what comes later in the deductions section of taxpayer’s filing. In other words, winnings increase AGI, but losses do not decrease AGI except for a professional gambler.
Evidence of Wins and Losses
Every gambler whether pro or amateur should keep track of their wins and losses. Documentation is going to be your protection. You will also want to keep these documents safe for a number of years as safeguards in the event of future audits. Remember that too much information is never too much.
Wins of any kind are to be included as income. That includes money or the fair market value of bonds, trips, cars, and additional property of any type.
Answers to Questions You Need to Know
If you are a professional player, how do you list your profession on your taxes?
Simple answer: be certain to record everything on your Schedule C.
Can you carry over your losses from year to year?
No. The year in which you sustained losses is the only year you can claim those losses.
Are coaching and online instruction eligible deductions?
Yes, provided you are filing as a professional gambler.
How long should you keep your gambling records?
This is the important question. It is recommended that you keep your tax records for as long as seven years. Many say that the IRS typically does not go back more than three years.
Do you have to report your comps?
In most cases, yes. If you accept rewards such as a car, extravagant trips, or other such property, you should claim their market value as income. There are some exceptions, so check with your tax professional to be sure
Is there any way for a casual player to avoid increasing their Adjusted Gross Income (AGI) when claiming winnings?
No. Unfortunately, you claim income before you begin to figure deductions, etc. The rates of deductions are based upon your AGI. So even if your winnings and losses are the same, your winnings will affect the rate of taxes that you will pay in the end.
Do you report online winnings differently than live casino wins?
No. A win is a win. Income is income, so be certain to keep track of all the great places you have played online so that you do not overlook wins and losses. This might be a good reason to find a few favorite trusted online casinos and keep good records. When it comes to playing at live casinos, if you plan on claiming losses against your phenomenal jackpots, then you should use a players card at all times.
What should you need to do when gambling?
As stated above one of the most important things for player to do is to keep precise records and evidence of spending, receipts, dates played, and especially any documents that were given to you by the casinos.
Also it is extremely important to understand the local laws where you reside because Federal Income Taxes may not be the same to your state of residence.
Are Casinos subject to money laundering rules?
Casinos and card rooms are subject to the “money-laundering rules,” and must report aggregate cash transactions of $10,000 or more in any one day to the IRS. They also can make out such reports for amounts as low as $2,000 if they are suspicious. Once a casino has your SSN and ID on record, they can issue these Cash Transaction Reports (CTRs) without your knowledge.
Now if you think this will stop you from playing games at casinos or stop you from entertaining yourself with the fun of gaming and gambling? Don’t let this fact create a doubt in your mind. After all laws are to abide and the huge winnings at online casinos and game plays if end up in receiving a specific tax form might be a good cause for some well being of our country and people. So even if you don’t receive a W-2G or other documentation from the casino or gambling establishment, you are still required to file those wins. Keep track of all income and losses to protect yourself from audits and fines, play casino games with casino coupon codes and enjoy your wins to make yourself and someone else keep a smile!