The past several years have seen an explosion of gambling opportunities for taxpayers. Local casinos have sprung up throughout the USA. A current count reports 44 states offering legalized casinos, either commercial or tribal run. And on-line sports betting sites such as FanDuel and DraftKings Sportsbook, among others, have become popular sites for people to wager on sporting events. And don’t forget about the lottery, such as Mega Millions and Powerball, as well as Keno and scratch tickets all which can be purchased at your local convenience stores plus numerous other sites as well.
Winning a big payout is certainly exciting but remember that gambling winnings are fully taxable. Such gambling payouts will generally be reported on a Form W-2G Certain Gambling Winnings. The W-2G will either be given to the taxpayer at the time of the gambling win or by January 31 of the following year. And for reporting purposes, as noted on the back of the Form W-2G:
The payer must furnish a Form W-2G to you if you receive:
1. $1,200 or more in gambling winnings from bingo or slot machines;
2. $1,500 or more in winnings (reduced by the wager) from keno;
3. More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament;
4. $600 or more in gambling winnings (except winnings from bingo, keno, slot machines, and poker tournaments) and the payout is at least 300 times the amount of the wager; or
5. Any other gambling winnings subject to federal income tax withholding.
And if a taxpayer’s cash payout winnings exceed the wager by $5,000 or more, then the gambling establishment is required to withhold 24% of the payout for federal taxes.
Regarding gambling winnings from casino tables such as roulette, blackjack or craps generally being the most popular among other forms of table betting; taxpayers should report their winnings based upon the “honor system”. Casinos are not required to issue a W-2G for these winnings because casinos have no way of knowing the amount of money a gambler started with when a gambler initially sat down at a table to play. Thus, the casino does not know the actual amount won (payout less dollar amount started with) for this type of gambling.
And for taxpayers that itemize their tax returns the IRS allows taxpayers to claim gambling losses on their tax return. From the IRS website: “You may deduct gambling losses only if you itemize your deductions on Schedule A (Form 1040) and kept a record of your winnings and losses. The total amount of losses you deduct can’t be more than the amount of gambling income you reported on your return. Claim your gambling losses up to the amount of winnings, as “Other Itemized Deductions.”” If a taxpayer is ever audited by the IRS and questioned on their claimed gambling losses on their tax return, the IRS would ask for an accurate record of gambling wins and losses preferably in the form of a detailed diary listing the date and type of wagers made, the name and address of the gambling site, names of other individuals with you at the gambling establishment, and the amount won or lost that day. Documentation should also include betting tickets, credit card and bank records, and other receipts while at the gaming site. And believe it or not, not only does the cost of the wager count as a deductible gambling expense, but travel expenses to and from the casino will qualify to be included in your gambling losses, according to IRS Publication 529.
