We get this question a lot. Unfortunately, you will not be so lucky when it comes to taxes.
Gambling winnings are taxable income
Winnings at a casino, on a scratch ticket, the bingo hall, or sportsbook are taxable income. The amount of income is the net winning on per wager. For example, if you bet $20 on your favorite sports team and win $100, your taxable income is $80. The taxable income amount is reported as “Other income” on Schedule 1 of your income tax return and is included in your gross income.
If you are lucky enough to win more than $5,000 in the lottery or certain types of gambling, 24% will be withheld by the payer for federal tax purposes and remitted to the IRS. You’ll receive a Form W-2G from the payer showing the amount paid to you and the federal tax withheld. If state taxes are withheld, that amount may also be shown on Form W-2G.
Can I deduct my losses?
It is important to keep track of your losses. Loss can be deducted, but only as an itemized deduction. Therefore, if you do not itemize your deductions and instead, take the standard deduction, you cannot deduct gambling losses. In addition, gambling losses can only be deducted to the extent of your winnings. In the event you can offset your winnings with a matching deduction for losses, you may still experience a tax burden. Gambling winnings are reported in your adjusted gross income (AGI). AGI is often used as a limitation measure for certain deductions and credits. This means despite breaking even or even losing money on your gambling activities you could be increasing your tax liability by losing out on certain deductions and credits due to an inflated AGI. As with any deduction, be sure to keep records and documentation.
So far, we have discussed how gambling winnings are taxed Federally. It is important to note that most states have different rules. In fact, many states do not permit the deduction of losses. This means you may owe significant state taxes without truly winning.
The rules are different for people who gamble professionally such as professional poker players or sports wagers. The reporting is very similar to a traditional business. That’s a blog for another time.
Contact us for help
If fortune is on your side, don’t forget about taxes. Contact your ClarkSilva team member to discuss your situation today.