If you inherited a lucky rabbit’s foot from your grandfather, found a four-leaf clover, or were gifted a horseshoe sometime in your life, you are blessed to make most of your income from gambling. All joking aside, your good fortune and profits from your acquired skills can quickly disappear if you don’t take the time to handle your taxes properly. We developed this guide to share some unique difficulties gamblers earning large amounts of money face, especially if it is their primary source of income. Keep reading to learn more about the required tax forms you need. You can also avoid common issues and mistakes by reading answers to some frequently asked questions about taxes as they relate to gambling income.
Required Tax Forms for Gamblers
When you make a significant amount of money from gambling, the payer, which is often a casino, must issue you Form W-2G, Certain Gambling Winnings. When you file your taxes, you report your winnings under “Other Income” on Form 1040 or Form 1040-SR, and Form W-2G serves as documentation. The Internal Revenue Service (IRS) also requires you to report additional gambling income that isn’t included on your W-2G. Additionally, the IRS sometimes requires gamblers to pay an estimated tax on their winnings.
FAQ About Taxes and Gambling
Earning large amounts of income from gambling is a unique tax situation that deserves special treatment. If you are new to gambling and have been winning like crazy, you likely have some questions about taxes. Below we have provided answers to some frequently asked questions that relate to reporting and paying taxes on your gambling income.
What Types of Gambling Winnings Must I Report?
Gambling winnings come from a wide variety of sources. You likely know most of them, but some may surprise you. The most commonly reported gambling winnings come from:
- Lottery tickets
- Sports betting
- Poker and other card games
- Slot machines
I Won a Car, Boat, Vacation, ATV, etc. at the Casino, Do I Have to Pay Taxes?
The IRS wants to know about your noncash winnings. You must include the fair market value of your prize when you report your income.
Can I Deduct My Gambling Losses on My Income Taxes?
Yes, you can deduct your losses, but only if you itemized deductions. Yet, you need to keep impeccable and verifiable records of your wins and losses because you can only deduct your loss up to the amount of reported winnings. Also, you cannot deduct the cost of gambling. For example, you head to the horse track and bet $100 on your favorite filly and win $1,000. You must report $1,000, not $900.
When Does the Payer Have to Give Me a W-2G?
When you make most of your income from gambling, some days are better than others. When you only win a little money, the payer does not need to provide you with a W-2G. Yet, if you win big, you need to get the form to report your winnings. Payers must provide gamblers with a W-2G if they win:
- $600 or more if the amount is at least 300 times the bet
- $1,200 or more from a slot machine or bingo
- $1,500 or more from keno
- More than $5,000 in a poker tournament
- Any other winnings subject to federal income tax
If you win money while playing table games at a casino, they do not have to give you From W2-G. You still need to report your winnings, but the casino doesn’t need to provide the form. Table games that fall under the W2-G exemption include blackjack, craps, and roulette. In fact, you must report all winnings as income no matter how small, but you are on an honor system for those not listed above.
What Federal Tax Rate Do I Have to Pay on My Gambling Winnings?
The IRS withholds 25% of any winnings you report on Form W-2G. If you did not provide the payer with your Social Security Number, the IRS withholds 28% of your winnings. In most cases, if you win at a casino, they will deduct 25% for taxes and indicate the deduction on your W-2G. This ensures that you’ve paid the taxes and leads to fewer problems with reporting when tax season arrives.
Can I Consider Gambling as Self-Employment?
Yes. Depending on the amount of money you make gambling each year, reporting your gambling winnings as self-employed income might be the best course of action. You should consult with a tax attorney to find out what is best for your situation. If you choose to go the self-employed route, you will report your winnings on Schedule C instead of as “Other Income” on your 1040 tax form.
The choice to treat your professional gambling as a business changes your potential deductions. Self-employed taxpayers can deduct the costs of doing business on Schedule C to reduce their taxable income. If you are a professional gambler, some costs of business you can deduct include:
- Subscriptions to magazines, newspapers, and websites related to gambling
- A percentage of your internet bill if you gamble online
- Airfare, hotel, meals, and other travel expenses if you attend tournaments
These tax benefits might seem great, but you also must pay self-employment taxes on your winnings. It’s in your best interest to consult with an experienced tax attorney to find out the best way to report your winnings.
Silver Tax Group Can Help You Avoid Common Pitfalls Associated with Gambling Income
Gamblers don’t want to lose their winnings after sweating it out at the poker table or slots. Fortunately, we’re here to help you keep as much as possible of what you’ve earned. Our experienced team of tax attorneys helps clients who earn income from gambling avoid costly mistakes and penalties associated with filing their income taxes. If you have questions about your gambling income, contact us today for a free consultation to speak to one of our skilled tax professionals.