As summer rolls on many people are enjoying much needed vacations. Many of my clients have contacted me asking about the taxation of gambling winnings that they have received on their vacations. Whether you roll the dice, play cards or bet on the ponies, all your winnings are taxable. I wanted to list six tax tips for the casual gambler. I represent many professional gamblers so these tips do not apply to clients that gamble as their profession. There are different and somewhat more complex rules that apply to the professional gambler so if you fall into that catagory give me a call to schedule a more in depth tax strategy for your needs.
1. Gambling income includes winnings from lotteries, raffles, horse races and casinos. It also includes cash and the fair market value of prizes you receive, such as cars and trips.
2. If you win, you may receive a Form W-2G, Certain Gambling Winnings, from the payer. The form reports the amount of your winnings to you and the IRS. The payer issues the form depending on the type of gambling, the amount of winnings, and other factors. You’ll also receive a Form W-2G if the payer withholds federal income tax from your winnings.
3. You must report all your gambling winnings as income on your federal income tax return. This is true even if you do not receive a Form W-2G.
4. If you’re a casual gambler, report your winnings on the “Other Income” line of your Form 1040, U. S. Individual Income Tax Return.
5. You may deduct your gambling losses on Schedule A, Itemized Deductions. The deduction is limited to the amount of your winnings. You must report your winnings as income and claim your allowable losses separately. You cannot reduce your winnings by your losses and report the difference.
6. You must keep accurate records of your gambling activity. This includes items such as receipts, tickets or other documentation. You should also keep a diary or similar record of your activity. Your records should show your winnings separately from your losses.
Although I am Irish I do not have the old “luck of the Irish” so unfortunately I do not have to worry about being taxed on gambling winnings. However if you have that lucky streak and hit it big,feel free to contact me to develop a plan for handling tha taxation of those gains so there are no surprises at tax time!