In recent times, the number of people who travel to gambling centers or regions where gambling is a lucrative business is on the high side. Reno and some cities of Las Vegas welcome several travelers for this purpose.
Just so you know, if you win big while gambling, you do not get to keep every cent to yourself. Now someone is asking, why? Well, gambling winnings are taxable! …it’s as simple as that!
So, just before you embark on any journey for the sole aim of gambling, take some lessons on tax laws relating to gambling and be sure to understand every piece of information you find therein just so you avoid the Internal Revenue Service (IRS) and its stress.
A little explanation of why gambling income is taxable.
Now, you’ll ask … “is gambling income taxable?” well, don’t stress it, the answer is not far- fetched!
Yes! Gambling income is taxable and just before the smiles on your face disappears into thin air, there is good news for you as an earner… hang in there!
Unlike normal income taxes, taxes placed on gambling are constant. That is, not progressive.
So, you have nothing to worry about. Be it winning a $3 million at the poker table or $1500 at the slot machine. So, when you hit a big one, 25% of your big win is to go to whichever game you play.
Plus, you will be provided with an IRS form which is also known as a W2-G to enable you to report your earnings and winnings to the government. Keep in mind that this threshold depends on the type of game.
Another suitable question to ask is this, “do these games report their gambling earnings? Definitely!
A quick look at some examples; for specificity, in the casino, in order for your winnings to be reported, there is one inevitable threshold that should be declined.
Another example is the slot machines; for winnings above $1200, it is required of you to report them.
For that of horse tracks, winnings that are greater than $600 or that are 300 times your initial wager must be reported.
The case is not different for bingo as it is similar to the slot machine. Every winning from $1200 should be reported.
The poker tournament is no different as every winnings Greater than $5000 must be reported.
In spite of all these, it is not required of Casinos to hold taxes or issue a W2-G that was mentioned earlier in this article to players who win big amounts at some table games. For example, roulette, blackjack, craps.
The reason for this kind of segregated requirement made by the IRS is unknown to us perhaps but known to them.
From a well-observed point of view, in the table games, a level of skill is required whereas the slot machines are merely a game of chance. So, it is not expected of casinos to ascertain for sure the amount you begin with when you cash in your chips from a table game.
Now you ask, “What happens when a W2-G is not sent to me or what happens when I do not get a notification? Your question might also be asked in this form… What happens if my taxes are being withheld from blackjack winnings?
Before you raise your hands high in the air while smiling thinking you can outsmart all these, just a gentle reminder, not receiving a W2-G form or having withheld taxes does not relieve you of your duties to report whatever is been won to the IRS.
The next question that should readily come to mind is “what should I do in cases like this?” It’s simple! Do it yourself! You will save yourself a whole lot of mess by filing your taxes alongside your other taxes for the year rather than at the casino where you claim your winnings.
Now, someone is saying, “oh! I’m a professional gambler, gambling is what I do for a living, mine is quite different, how do I report my tax?”
If gambling happens to be your real profession then, your revenue will be tagged as regular earned income hence, it will be taxed at the normal effective income tax rate of a taxpayer.
Keep in mind that your income and expenses compulsorily must be recorded on Schedule C, if you are self-employed.
Here is a poser. Ever wondered if individual states tax gambling winnings? Well, to answer the poser, certainly, they do.
In some states, it is required of gambling winners to claim their winnings in the state where they were won irrespective of your place of domicile. Also, your state of residence will require you to report your winnings but, at the same time give a deduction for the taxes that have already been paid in the non- resident state.
Seems like we are missing out on something really important which happens to be our big question for this article.
Ever thought of what will happen if you do not report your gambling winnings? Well, enough of the rambles and mumbles as your eye-rolling has confirmed the answer. Well, we know it’s a “No” simply because when that thought crossed your mind, you waved it off with the back of your hands.
But, guess what? Dust your rackets as we will be hitting off some balls of questions as regards that.
It is quite easy to shrug off the idea of reporting your gambling earnings whenever that thought creeps into mind because we all want to enjoy our bucks without any external force trying to snatch it from us.
So sad! Now might not be a perfect time to let that slide as you do not want to get involved with the IRS. Bet it could get messier than imagined.
As we all know that the most difficult thing in the world to understand, as stated by Albert Einstein, is the concept of income taxes.
However, it is pertinent that you report the full amount of your gambling winnings as “other income” on line 21 of form 1040 as stated by the IRS. Also, you must distinctly claim your allowable gambling losses.
It is unknown to many that the IRS does not permit reducing or netting, gambling winnings by gambling losses and just reporting the difference. Well, it is considered that such a person owes the IRS back taxes, interest and penalties.
Just so you know, gambling losses up to your winnings must be claimed as an itemized deduction on Schedule A, under the heading “other miscellaneous deductions”. Where the problem lies is that asides netting, there are more than 65% of taxpayers who don’t itemize their deductions and can’t deduct gambling losses pay more tax on gross winnings than they won.
Besides, losses accumulated from gambling cannot be moved forward to counterbalance winnings in another year.
In case you haven’t heard, the IRS takes a hard line on gambling income. Hence, in an audit, without providing enough documentation, the agent will fail to believe you’re losing all winnings. That is, you must have sufficient documentation to prove your loss so, keep your losing tickets alongside all other important documents you’ve got.
What will a proper record-keeping require of you?
A proper record-keeping will require a date, the type of gambling activity or wager, the name of the gambling establishment, the address of the gambling business and the number, list of people present with you plus the inevitable, amount won or lost.
In some cases, it will be of utmost importance for you to keep supplements hotel bills, gas cards, and airline tickets just to prove that they were not part of ATM gambling funds.
Sometimes, the IRS fails to take into consideration the credibility of the ATM receipts forgetting that the ATM cash receipt could have been used to purchase the nondeductible like cinema bills, spa treatment, salon, restaurant meals.
So, we urge you to input all the ATM funds received to fund the gambling sessions as evidence for your gambling records.
Keep in mind that the IRS kicks against the player’s reward card as it is most times an ingenuine way to prove gambling loses because other gamblers have used the card.
Your identity and evidence that you were the only one using the card should all be in your gambling records.
Your gambling log is being supported and given credibility by document and win-loss reports. So, put your journal to substantiate the player’s card at every gamble.
In conclusion, we urge you to be careful just in case because many statements do not provide substantiative evidence simply because estimates are being used. Also, do not hesitate to report every of your gambling winnings.