July 26, 2013

No matter what type of gambler you are, a card player, a sport’s better or a Craps aficionado, understanding how your wins and losses impact your tax implications is a tax payer’s responsibility. The Internal Revenue Service would like to remind you of six easy to follow compliance tips after you enjoy every gambling experience.

How does the IRS Define Gambling Income?

Gambling Income includes more than just what happens at the casino. Along with income or losses from a casino, lottery, horse race and raffle income losses and gains fall under this definition. Cash and the fair market value of prizes including vehicles, vacation packages, and related items are taxed at their cash equivalent.

How do I report Gambling Winnings?

Gambling winnings are reported through IRS Form W-2G. Depending on how much you win and the type of gambling you undertake, you may receive this form directly from the “payer” or organization from which you won the money. If the payer withholds federal income tax from your winnings, you will receive a Form W-2G. This form, according to Robert W. Wood of Forbes.com, works just like a 1099 Interest Form that you receive as part of tax time preparation forms. He reminds everyone the IRS also receives a copy of the Form W-2G and reminds winners to keep it handy for tax time to ensure full compliance!

If gambling winnings do not meet the following thresholds set by the IRS for the respective type of gambling, it must be reported as “Other income.”

Bingo or slot machines:  $1,200
Keno:  $1,500
Poker Tournament:  $5,000 (excluding wager or buy-in amounts)
“Other” gambling winnings:  $600

“Other” gambling winnings are those that do not include poker tournaments, slot machines, bingo and keno – and the payout is at least 300 times the wager amount).

What if My Winnings don’t Meet the Above Thresholds?

No matter how much income is generated from gambling, it must be reported if you receive a Form W-2G or not. If your winnings do not meet the threshold, you must report your income under the “Other Income” line on the Form 1040 U.S. Individual Income Tax Return.

What do I Do if I Lose Money From Gambling?

Gambling losses may be deducted. Deductions are permitted up to the winnings amount. Losses must be reported, as an Itemized Deduction, on Schedule A, separately from any winnings.

How are Winnings and Losses Substantiated?

The IRS requires proof of losses and winnings. In case of an audit and to maintain integrity of your income tax return, the IRS recommends keeping all records related to winnings and losses. Items to substantiate gambling transactions include tickets, receipts, checks, and IRS Form W-2G (if given). Maintaining a notebook or other written documentation is highly suggested to keep winnings and losses separate and organized.

Where can I get more Information?

Consulting with legal professionals and certified public accountants (CPAs) will make sure you understand what your individual obligations are. You can also visit the IRS’ website or contact Optima Tax Relief to obtain the appropriate publications to become more familiar with this topic.

Having complete information and competent professionals to claim your gambling winnings and losses will ensure you are compliant with your tax obligations and prepare you for a potential tax audit.

Photo:  Lisa Brewster