August 20, 2015

Denver Tax Attorney   Do I Need to File a Tax Return on Gambling Winnings?Taxes are probably the last thing on your mind when you are playing games of chance at a casino, placing wagers on horse races, or even playing Bingo at the mall. Unknown to many, however, is that your gambling winnings are almost always considered taxable income. Failure to properly report your earnings can result in headaches and penalties you do not want to deal with.

The money you win from gambling is income that you must report on your tax return—specifically on IRS Form 1040, Line 21. The more income you earn, the more income taxes you’ll need to pay.

Gambling losses, on the other hand, are deductible as a miscellaneous itemized deduction. This means that you must first itemize the deductions in order to claim them. The amount that can be deducted is limited, plus you must prove the amount of your deduction. You generally must report your losses and winnings separately, as opposed to reporting a net amount.

Generally, gambling losses are considered as deductible because gambling is an activity that produces income. The tax code clearly limits the amount of deductible losses, as you can take a deduction only up to the amount of your gains from gambling. The good news is that deductions claimed for gambling losses do not necessarily have to be for the same type of wagering or gambling activity for which you have winnings.

Depending on the amount you win, you may receive at least one Form W2-G. This form issued by a casino or a payer to lucky winners basically reports the amount of your winnings and any tax that was withheld—with a copy going to the IRS.

Many casual gamblers are under the impression that only winnings on a Form W2-G need to be reported. This is not true, as tax law requires individuals to report any and all winnings on their tax return, regardless of whether or not they are included in a W2-G.

It is important to keep detailed records of all your gambling activities, separately showing your losses and winnings. These records should include information such as the date, the type of gambling activity you were involved in, the name and address of where you gambled, the amount you lost or won, and the names of the other people you were with.

Apart from your Forms W2-G, you also need to save all other available documentation such as checks and bank statements, wagering slips or tickets, and any statements or receipts issued by the establishment where you gambled. Even hotel bills, entry tickets, and plane tickets may be needed to document your presence at a particular gambling location.

Professional gamblers face similar tax rules, as they may only take a deduction for gambling losses up to the amount of gambling gains. Losses are claimed as business expenses, while winnings are claimed as business income.

 

 

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