Don’t Roll The Dice – Reporting Your Gambling Winnings
If you enjoy gambling, whether it be at a horse track or inside a casino, there are some important things to know regarding taxes and your winnings. Gambling income is considered taxable income, and “income” is not strictly limited to cash. Any non-cash items won, such as cars or trips, will be taxed at fair market value. It is important to report your gambling winnings when filing tax returns.
How Much Will You Be Taxed?
Typically, anything you win gambling is subject to a 25% tax. If you enter any sweepstakes, wagering pools, lotteries, or other wagers in which the proceeds are at least 300 times the amount of the bet, then your winnings are subject to income tax withholding if those winnings are over $5,000.
If you typically itemize your deductions, you can deduct any gambling losses on your Schedule A. However, the amount deducted in losses cannot exceed your total amount of winnings.
Taxes May Have Already Been Withheld
Depending on where you won your earnings and the amount you won, it’s possible that the establishment paying out already withheld taxes. If this is the case, you should receive a Form W2-G, Certain Gambling Winnings, from the payer. If you receive one of these forms, it is an absolute certainty that the IRS received one as well, meaning the government knows about your winnings and will look for them to be reported when you file your tax return.
As with all things involving your taxes, it is important to keep diligent records throughout the year. This will not only make it easy to file a return but will help in the case that you are ever audited. The IRS recommends that you keep a log of your gambling throughout the year that documents the following:
- Type of Gambling
- Address Where the Gambling Occurred
- Names of any Witnesses That Were Also Present
- The Result – Any Amount Won or Lost
It is also recommended that you keep all receipts, payment slips, tickets, statements, and tax forms you receive. These documents should be kept in a safe, secure, accessible location.
Avoid An Audit
The quickest way to squash the excitement of a big payout is later finding out that you owe the IRS a significant sum of money. Receiving a large lump sum of money may put you on the IRS’ radar, making you susceptible to audit. Make an appointment with trusted Californian tax experts. Our experienced team at Sherbetjian is available year-round for consultations, and will ensure that your earnings are properly reported.