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ecgtaxpros.com - What You Should Know About Taxes on Gambling Winnings

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Winning money at a casino, sportsbook, or via the lottery is a rollercoaster ride with its inevitable up and downs. Yes, it is undeniably exciting to win and stash a little extra cash in your pocket. But the downside that many forget in the heat of the moment, is that you owe taxes on those winnings, and if those taxes are not disclosed on your annual tax return or paid in full, you could end up with plenty of problems with the IRS. They will not hesitate to collect what is owed to them and more, should you profit from gambling winnings.

What Constitutes Gambling Winnings?

The IRS only requires people to pay taxes on a certain amount of the money that they win through gambling. These amounts vary, based on how the money is won. Here is a general breakdown to keep in mind when at the casino or racetrack: Sports Wagers – Any amounts won exceeding $600 are considered taxable, especially if the funds make up 300 times your initial bet. Slot Machines and Bingo – If you win more than $1,200 on either of these gaming machines or a jackpot at a local old-school bingo parlor, then that money is taxable. Poker – Winning a collective $5,000 on poker, regardless of the form of this classic card game, means that you must declare your winnings on your taxes and pay the IRS a percentage of them. Keno– $1,500 is the minimum amount won that you must pay taxes on when playing Keno. All of these amounts are collective, so if you win $1,200 while playing a slot machine, and then another $1,200 the next time you are at the casino, you will owe taxes on all $2,400 of your winnings. Plus, if you’re playing the games at a casino or racing track, they will require you to fill out a form that reports your winnings to the IRS. Most places will keep 25% of the money that you won on behalf of the IRS, paying you the rest. Others will not, forcing you to set aside some of the money that you have won in order to pay your tax debt on time. Of course, there are other games in a casino where you can also win money while playing. The money that you win at these games, such as roulette and baccarat, also must be declared to the IRS at tax time, so keep track of your winnings while you play.

Are Gambling Winnings Taxable?

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The short answer here is yes. Your gambling winnings are taxable. The amounts listed above are some examples of what needs to be reported to the IRS, so they receive their share of your winnings. Gambling winnings are usually taxed at a rate of 25%. It is important to note that not only should your winnings be reported on your tax return, but so should your losses. While you cannot report an amount of losses that is greater than your winnings, you can offset your winnings with your losses, thus lowering your tax liability on them.

How Are Gambling Taxes Paid?

In some cases, taxes are paid on gambling winnings right away. The money is held by the casino and submitted to the IRS along with a W2-G form. This occurs mostly when people win a large amount of money, such as the $1,200 on a single slot machine pull or $1,500 on one game of keno. The casino will keep the portion that you owe to the IRS and sent it to them with a form that you receive a copy of. Not every casino does this, but it is something to keep in mind the next time you are gambling. Other cases, especially those consisting of smaller winnings that are won over the course of a year that add up to those larger, declared amounts, are a part of your yearly taxes. You must declare these amounts, as you will owe tax on those winnings when you submit your return to the IRS.

When Do I Have to Report My Winnings?

Casinos track how much you have won via membership or VIP cards. Every time you enter a gambling establishment and swipe your card, you will not only rack up points with them that can be used for various membership items, but they also use the information to see how much you have spent, won, and lost within their walls. Winning a large amount of money all at once triggers a form called a W2-G. This is a form that the casino or track fills out that contains all of your personal information and the amount of your winnings. You will need that form on hand when you do your yearly taxes, although the casino will hold a portion of your winnings for the IRS and take care of them for you. All of this collected information will help you at tax time, when you need to report your winnings alongside all the other money that you have made that year. There is a section on a long form tax return specifically for gambling winnings.

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What Happens if I Fail to Report My Winnings?

Failure to report your winnings will get you into trouble with the IRS and unwantedly put you on their radar. You could be audited and forced to pay penalties on top of the money that you owe thanks to your gambling winnings. If you won a smaller amount, you may just receive a letter from the IRS informing you of your mistake and letting you know how much you need to pay in fines and penalties. In other cases, you will be audited, as they look for additional discrepancies on your tax return (which can lead to bigger issues).

Don’t Just Roll the Dice, Get Help

If you have won money gambling are unsure how to report your winnings on your tax return or have losses to offset a portion of your winnings, it is important to contact a tax professional to ensure your reported winnings are accurate. Since these details are reported on your tax return along with all of your other information from that year, such as your salary, investments, and more, it is crucial that your tax return is filled out properly. If you have tax-related questions about your gambling winnings, the tax advisors at the Enterprise Consultants Group can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a consultation to see how we can help you.

Need Help Reporting Your Gambling Winnings to the IRS?

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Contact Our Team Today.

ecgtaxpros.com - What You Should Know About Taxes on Gambling Winnings

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