As you begin your year-end tax preparations – organizing your documents and making last minute tax deductible donations – don’t forget to consider the tax implications of any gambling wins and losses you may have incurred throughout the calendar year. Gambling can often be an overlooked benefit or potential liability for individuals who itemize.
Gambling winnings are fully taxable and must be reported on a return. Gambling income includes cash winnings or fair market value from prizes or “comps” from activities sponsored by lotteries, raffles, horse races, and casinos among others. Gambling winnings must be reported on a Form 1040 (PDF) as "other income" including winnings that are not subject to withholding.
Be aware, payers are required to issue a Form W-2G on “certain gambling winnings” or winnings subject to federal income tax withholding. The W2-G is issued to players and is also sent to the IRS by the payer for winnings of $600 or more from state lotteries, horse racing, dog racing or jai alai and other wagering transactions; if the winnings are at least 300 times the wager; winnings of $1,200 or more from bingo and slot machines; winnings of $1,500 or more from keno; and more. (W2-Gs are not required for winnings from table games such as blackjack, craps, pai gow, baccarat and roulette, regardless of the amount.) Additionally, all winnings are taxable by the state without regard to losses.
Unfortunately for those of us who were not so lucky last year, gambling losses are only deductible for individuals or married couples who claim winnings on their itemizations, and may not be more than the amount of gambling income reported on a return. Receipts, tickets, statements, or other records that show the amount of both winnings and losses should be provided in order to deduct losses (Publication 529). Married couples filing a joint return must combine their winnings and combine their losses, and report only one figure for each.
“As with all itemizations, keeping an accurate diary or other record of your gambling winnings and losses is critical,” said John Kasperek, Jr., President of John Kasperek Co., Inc., a Certified Public Accounting Firm in Calumet City, Illinois. “Rest assured, the IRS will require these documents in the event of an audit.”
The IRS requires that an accurate record must be maintained for substantiating wins and losses, and that the diary should contain at least the following information: the date and type of specific wager; the name and address or location of the gaming establishment; the names of any others who were present with the winner; and the amount won or lost. The IRS will also look for supplemental payment or withdrawal records.
Kasperek added, “It is important to always be aware of your tax obligations. When in doubt, consult an expert.”