Gambling remains an ever-popular U.S. pastime. But it’s more than just fun and games — gambling can also have serious tax implications. Here are the most important issues involving the federal tax treatment of an amateur gambler’s winnings, losses and gambling-related expenses, along with information on a recent favorable development from the IRS.
For example, suppose you reported $13,000 in gambling winnings on Line 21 of Form 1040. Even if you lost $100,000 that year, your gambling loss deduction is limited to $13,000.
IRS Proposes New Rules for Electronically Tracked Slot Machines
In March, the IRS released Notice 2015-21, which proposes an optional safe-harbor method for slot machine players to determine wagering gains and losses for federal income tax purposes.
The proposed rules, which are summarized below, indicate that the IRS won’t challenge a taxpayer’s use of the per-session method to calculate wagering gains and losses from electronically tracked slot machine play if the taxpayer meets these requirements:
Uses Electronically Tracked Play System. This is controlled by the gaming establishment (such as through the use of a player’s card or similar system) and records the amount a player wagers and wins on slot machine play.
Uses the Same Session of Play Definition. This is defined as a period that begins when the player places the first wager of the calendar day on a particular type of game and ends when the player completes the last wager on the same type of game before the end of the same calendar day. A session always refers to a specific 24-hour period that starts at midnight and ends no later than 11:59 PM. The same session of play is continued if the player stops and then resumes electronically tracked slot machine play within a single gaming establishment during the same calendar day. For each gaming establishment, a player must use the same definition of “session of play” for all electronically tracked slot machine play during the same tax year.
Tracks Gains and Losses. To determine wagering gain or loss from electronically tracked slot machine play at the end of a session, a player must:
- Recognize a gain if the total dollar amount of payouts exceeds the total dollar amount of wagers placed during that session, or
- Recognize a loss if the total dollar amount of wagers exceeds the total dollar amount of payouts during that session.
If the IRS finalizes the proposed rules, the regulations generally would be effective for tax years ending on or after the date of publication. However, some adjustments are possible. For example, many gamblers would appreciate a more flexible definition of “session of play,” because play often isn’t interrupted by the end of a calendar day. Contact your tax professional for the latest news on reporting online gambling activities.
Report Winnings in Full
Theoretically, the full amount of an amateur gambler’s winnings must be reported as gross income on the miscellaneous income line of Form 1040. Winnings include cash and prizes collected from lotteries and raffles, as well as installment payments.
For most types of gambling at legitimate gaming facilities, you’ll be issued Form W-2G, “Certain Gambling Winnings,” if you win $600 or more and the amount won is more than 300 times the amount wagered. However, a $1,200 tax-reporting threshold applies to winnings from slots and bingo, a $1,500 threshold applies to keno winnings and a $5,000 threshold applies to poker tournament winnings. When winnings exceed $5,000, federal income tax withholding is generally required, except for winnings from slots, bingo or keno.
Important Note: Because the IRS also gets a copy of Form W-2G, make sure gambling winnings reported on your return at least equal the collective amounts reported on Forms W-2G.
Limited Deduction for Wagering Losses
An amateur gambler’s wagering losses can be claimed only as a miscellaneous itemized deduction. Losses for the year can’t be netted against winnings for the year with only the net figure reported as gross income on page 1 of Form 1040. Amateur gamblers who don’t itemize can’t claim gambling loss deductions.
In addition, the itemized deduction for wagering losses is limited to the amount of gambling winnings. Any excess losses for a year can’t be carried forward. For a married couple filing jointly, the wagering winnings of both spouses are combined to determine the allowable itemized deduction for combined wagering losses incurred by both spouses.
There’s no requirement for losses to be from the same types of gambling activities as winnings. For example, slot machine losses can be deducted against poker winnings, subject to the losses-cannot-exceed-winnings deduction limitation.
For example, suppose you go to Las Vegas several times in 2015 to gamble. Early in the year, you win $10,000 playing poker and blackjack. Later in the year, you have a cold streak playing the slots and lose $15,000. On your 2015 federal tax return, you must report the $10,000 of winnings as miscellaneous income. You then report the $10,000 allowable wagering loss (equal to your winnings for the year) as an itemized deduction. However, the $5,000 excess loss can’t be deducted in 2015 or carried forward.
No Deductions for Out-of-Pocket Expenses
Only the cost of an amateur gambler’s losing wagering transactions are considered gambling losses. Out-of-pocket gambling-related expenses — such as transportation, meals and lodging — don’t count as gambling losses and can’t be written off. They’re considered nondeductible personal expenses.
Federal Tax Treatment Of Gambling Winnings On Slot Machines Sold
Documenting Wagering Losses
Gambling wagering losses must be adequately documented to be deductible. Under IRS Revenue Procedure 77-29, an amateur gambler must record the following information in a log or similar record:
- Date and type of specific wager or wagering activity,
- Name and location of the establishment, and
- Amount won or lost.
Also record the names of any other people present with you at the gaming establishment. Obviously, this isn’t possible when gambling at a public venue, such as a casino or race track.
The guidance allows taxpayers to substantiate income and losses from wagering on table games by recording the number of the table played and keeping statements showing casino credit issued to the player. For lotteries, you can document winnings and losses with winnings statements and unredeemed tickets.
Keeping Records by Gambling Session
Until recently, the IRS claimed that an amateur gambler must report the full amount of winnings from each roll of the dice and every spin of the slot machine from casino euro on page one of Form 1040. This results in higher adjusted gross income (AGI) than just reporting net winnings from each gambling session. It also can potentially trigger undesirable AGI-based phase-out rules. For example, it could reduce college tuition tax credits or decrease tax-free Social Security benefits.
Of course, nobody actually tracks each roll of the dice and every spin of the slot machine. Thankfully, the IRS allows casual slot players to simply record the net winning or net loss from each gambling session. A session is deemed to end when the player cashes out or runs out of money. At that point, it’s possible to calculate how much was won or lost during that session. If the player then reports the sum total of the net winnings from all winning sessions as gross income on page one of Form 1040 and keeps track of the sum total of the net losses from all losing sessions for purposes of claiming the itemized deduction for gambling losses, the IRS will consider that methodology close enough to recording winnings and losses from each spin of the slot machine.
In a 2009 decision, the Tax Court appeared to endorse this per-session approach to recordkeeping for casual slot players. (Shollenberger v. Commissioner, T.C. Memo 2009-306) Presumably, the concept of recording per-session net winning and loss may also be considered sufficient for other forms of amateur gambling.
Gambling on Your Taxes Can Be Costly
That figure in fact, is one which is often linked to machines in Las Vegas where the state imposed minimum is indeed only 75%.Other global regulatory bodies however, do impose a more stringent minimum on physical slot machines, with the state of New Jersey requiring 83% and the state of Mississippi 80% for example.In the UK meanwhile, the UK Gambling Commission does not actually impose any statutory minimum. It does dictate however, that all machines must display their RTP percentages clearly to players and that does tend to prevent casinos and bookmakers from allowing the percentages to fall too low as to make games unfair. Do online slots or land based have better payouts?The best slot machine games, where payouts are concerned, are always online based. Best illinois slot machines to play. The percentage falls dramatically live as compared with online.Where the general online average RTP percentage tends to hover around 95%, land based casinos can – and often do – offer percentages as low as 75%. The best slots from a players point of view are usually always those with the highest possible payout percentages.
There’s no place for gambling when it comes to preparing your federal tax return. Play it safe and contact your tax professional today about how to accurately track gambling-related winnings, losses and expenses on your 2015 federal tax return. Start tracking your winnings and losses as soon as possible. Waiting until year end to recreate the required records can be difficult and time consuming.
Whether it’s in Las Vegas, Atlantic City or the local casino, thousands of people dream of winning big and changing their lives forever.
Most people that go end up with thinner wallets than what they went with but there are the occasional few that take home the big bucks.
However, if Lady Luck is on your side, you don’t get to keep all the money to yourself.
Gambling winnings count as taxable income, meaning that it’s not just your lucky day; you get to share it with the Internal Revenue Service (IRS).
So before you spent it all have the taxman knocking on your door for its share of the spoils, you must understand how gambling taxes work.
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Whether it’s sports betting, poker, fantasy sports, casino or even the lottery, everything you win from gambling is taxable. While this may cause you to sigh or to grit your teeth, unfortunately, that’s just the way it is.
This guide will show you everything you need to know about gambling taxes, including how they are taxed, the important requirements you must fulfil and how to report your gambling income.
How Gambling Winnings Are Taxed
The federal income tax process with regard to gambling remains the same across the US.
Unlike income tax, US gambling taxes are not progressive. No matter how small or how large you win, you are required to pay 25% to the IRS.
However, things can be different at the state level.
Each state in the US has its own tax structure. Therefore, you must first find out the tax structure of your state of residence.
Here’s a brief summary of how you can expect federal and state law to tax your gambling winnings.
First of all, you must know where your winnings came from, specifically the type of game which you were playing and cash out from.
There are certain thresholds you must meet, and they are as follows:
- $600 or more at a horse track or 300x your original bet;
- $1,200 or more from slot machines or bingo;
- $1,500 or more at keno;
- $5,000 or more playing poker
Now, for example, if you won $1,000 from horse racing and won $5,000 playing poker, you don’t report a lump sum of $6,000 won from gambling. Instead, you report each individual game.
This means that in the event you do win big, racetracks and casinos will require your Social Security Number before they pay you your winnings. You are also required to fill out IRS Form W2-G and report your winnings.
The reason for this detailed breakdown of winnings is because the casino will deduct 25% from your winnings before paying you. This is the money you are taxed by the US Government and you will be issued a receipt by the casino as proof.
But what about the gambling taxes on winnings less than the above thresholds?
As per the IRS, you must report them on your federal tax return as income.
It’s better to be safe than sorry, so always report your gambling winnings, no matter how small they are. Even if it’s just a few dollars from the slots, write it down.
Some states have an income tax rate of their own. If so, you must report your winnings on your state tax return too. This is particularly important now that gambling is becoming legal.
It’s worth mentioning here though that Nevada, the only state where gambling in a casino was legal, did not use to tax gambling income. Always check your state’s laws to see if you are legally required to report gambling winnings.
Many questions are asked about online gambling winnings and how they are taxed.
Online gambling taxes are in a bit of a grey area. Currently, online gambling is illegal in most states anyway but in those where it is legal, most are in the form of online sports betting. This is subtle but very important to be aware of.
The IRS specifies what is classed as taxable income and what is classed as non-taxable income.
Those that play daily fantasy sports for a living through DFS contents must be careful when it comes to gambling taxes.
For those living in a state where online sports betting will become legal in the future, through an online sportsbook, it’s recommended to read IRS Publication 525. It goes into detail about what they class as taxable income and what they deem as non-taxable income.
It’s rare for gambling winnings to be categorized as non-taxable income. Therefore, if you do win money from online gambling, be prepared to treat it exactly the same as you would for gambling winnings in a traditional casino.
Reporting Gambling Winnings To The IRS
One of the main reasons state governments want to legalize sports betting is because of the potential windfall of cash.
This means that they will be putting a lot of effort into making sure they get as much as possible from players’ winnings.
Federal Tax Treatment Of Gambling Winnings On Slot Machines Jackpots
Not reporting gambling winnings to the IRS and/or state government is a much bigger risk than the games you are playing.
With the lottery, for example, the state will obviously be made aware of winning tickets. It’s also certain that the federal government will be made aware of the winner too.
In terms of gambling, each state in the US has a gaming commission. They are responsible for keeping an eye on all gambling activities.
Casinos have an obligation to report all winners to the gaming commission, so any plans to avoid reporting winnings should be short-lived.
If you do not report gambling winnings, you risk being pursued by the government for tax evasion.
If you are then found guilty of tax evasion for not reporting your gambling winnings, you will face the same consequences as people evading tax on other taxable income.
Casinos’ Gambling Earnings Reports
As part of their operating license, casinos must report winnings to the IRS. However, they are required to report gambling winnings at the same thresholds as if it was an individual:
- $600 or more at the horse track or 300x your original bet
- $1,200 or more playing bingo or on slot machines
- $5,000 or more from poker
There are certain games that casinos are not required to issue Form W2-G or withhold taxes. These games include roulette, blackjack and craps.
The reason for this isn’t so clear cut. The IRS says that table games require a degree of skill while slot machines come down to pure chance. But casinos find it tough to be certain how much a player cashes out with compared to the amount they started with.
Nevertheless, just because you don’t get From W2-G or don’t have taxes withheld from these games, you are still required to report all of your winnings to the IRS.
Do it yourself when it’s time to file your taxes.
Professional Gamblers
Some people gamble professionally for their livelihood.
For these players, gambling winnings are considered regular income for tax purposes, meaning that they are taxed at the normal income tax rate, rather than the gambling tax rate.
All income and expenses for professional gamblers much be recorded on Schedule C, not Schedule A.
Gambling Winnings Records
Always report your gambling winnings; the consequences of not doing so are not worth facing.
With all this in mind, keep a record of all your receipts. This includes both winning and losing sessions. Gambling losses can also be deducted against income but without proof, you will not be able to claim these losses. Good record keeping will ensure you can itemize your losses and use them to offset against your income.
Here are a few things you should record:
- The type of bet
- The date of the bet
- The name of the casino or sportsbook you bet with
- The casino’s or sportsbook’s address
- The names of people you were with
- The total amount you bet
- The total amount you won or lost
- Documentation as evidence of your placing your bet
In terms of the documentation, here are some examples you can use.
For keno winnings, keep a copy of the tickets you bought as validated by the casino, your credit records and check-cashing record.
For slots winnings, record the slot machine number you won from, how much you won each time and the date that you played that machine.
For table games winnings, such as poker, blackjack, baccarat and craps, record the number of the table you were playing at and, if applicable, any information where credit was issued by the casino.
For bingo winnings, make a record of the game numbers you played, the price of the ticket and how much you collected.
For horse and racing winnings, make a record of the race you bet on, how much you bet and how much you won on the winning ticket and how much you lost on a losing ticket. Include any unredeemed tickets as supplementary evidence.
Finally, for lottery winnings, make a record of the tickets you bought, the dates you bought the ticket, how much you won from a winning ticket and how much you lost from a losing ticket. Again, you can include any unredeemed tickets as supplementary evidence.
If you gamble casually from time to time and you miss a few receipts on accident, you will be fine. Just make sure you are accurate with your reporting next time.
There are two IRS forms you must complete to report gambling winnings: the U.S. Individual Tax Return 1040 and IRS Form W-G2 Certain Gambling Winnings.
All profits from gambling are subject to a 24% gambling tax.
However, some sources of gambling winnings are automatically subject to withholding tax.
For more information on this, see the IRS guidelines.
They will help prevent you from making mistakes on your tax form and reduce the shock of being faced with a big bill at the end of the financial year.
Frequently Asked Gambling Taxes Questions
Do I Have To Pay Taxes On Gambling Winnings From A Casino?
Yes, you must pay taxes on gambling winnings from a casino. A more detailed explanation of how gambling winnings are taxed can be found above. You are legally required to report your income from all types of gambling activities.
Different games have different guidelines for when the income becomes taxable, but each must be reported on the tax return. Keep an organized record of all winnings and losses, which can be used to offset against profits.
Do I Have To Pay Taxes On Gambling Winnings From An Online Casino?
Yes, you must also pay taxes on gambling winnings from online casinos. This is because federal and state governments categorize winnings from gambling as income you are generated in an attempt to make more.
It doesn’t matter if it’s from playing the odd slot machine on your smartphone or from the poker table on your computer at home. As long as you win, the IRS wants their share.
Do I Have To Pay Taxes On Winnings From Daily Fantasy Sports?
Once again, yes, you must pay gambling taxes on winnings from DFS. Providers of these games will be documenting your winnings to the federal government. If you try and avoid paying taxes on daily fantasy sports winnings, you can land yourself in a lot of trouble.
Do Non-US Residents Have To Pay Gambling Taxes On Gambling Winnings?
Yes, non-US residents must pay taxes on gambling winnings. Whether it’s in the lottery or in a casino, they must pay a percentage of their winnings to the federal government. Non-residents must complete and file IRS Form 1040NR.
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Gambling income for non-residents is taxed at 30%.
Unlike US residents, non-resident aliens cannot deduct gambling losses from their tax bill.
However, a tax treaty between the US and Canada allows Canadian citizens to deduct gambling losses up to the amount of their gambling winnings.
Can I Write Off My Gambling Losses On My Tax Return?
Yes, you can write off gambling losses on a tax return.
You must first report some gambling winnings, so having a record of your results will be very useful. From here you can start to itemize tax deductions for all losses.
Nonetheless, there is a limit on the losses you can claim; it depends on how much you won.
In order to claim tax deductions, you must be able to prove you actually lost the money. This places even more emphasis on keeping your gambling records in order.
At the end of the day, you are deducting losses so you aren’t required to pay income tax on your gambling winnings. This is important as it impacts how the winnings affect your Modified Adjusted Gross Income (MAGI).
MAGI is based on all of your other tax deductions. It helps to determine if you need to pay more tax on other income or lose some of your deductions.
Do I Have To Pay Taxes If I Keep All My Money In My Account?
Even if you don’t withdraw your winnings from your account, you must still pay taxes. After all, you have still profited from gambling. Record all of your winnings throughout the year and report them on your tax return according to the IRS guidelines.
Am I Taxed On Group Gambling Bets?
Yes, you are taxed on group or team gambling bets. In fact, it’s the same the tax system used to gambling winnings for individuals.
If you are betting with a team, it becomes even more important to track your bets and keep a record. You don’t want to be taxed on the entire payout when you only took home a percentage of it.
Do You Need To Report Gambling Winnings After You Retire?
Even if you’re retired, you can still be taxed on gambling winnings. If anything, it is even more important when you’re retired to report gambling winnings. If you don’t, you can run into a few problems.
For starters, if you don’t report gambling winnings, you can be moved into another tax bracket. You could even have medical coverage changed and the premiums could increase too.
All because you didn’t report your bingo winnings to the IRS.
Be diligent with your reporting and ensure it’s all accurate, even during your retirement.
Summary
If you had no idea about gambling taxes and what you need to do, these basic principles should give an idea.
Above all else, make sure you always report your gamblings. It’s a much better alternative than being hit with a massive tax bill at the end of the year.
It’s also a good idea to keep records of your winnings too. These can be used to deduct losses and you will also know how much you need to pay in taxes from your winnings before the bill even arrives.
It might seem a bit over the top to keep winnings receipts if you gamble every once in a while. But in the eyes of the IRS, there’s always a chance you won big.