Millions of people gamble every day and as the old adage says: “you win some, you lose some”. In fact if you win some, you are likely to lose some, as well. Whether you have an affinity for poker, the office ‘pool’, sports gambling, lottery tickets, or local fundraising raffles – if you win you are obligated to pay! Uncle Sam wants his ‘cut’ of your income, for gambling winnings are indeed considered income. Most often gamblers are not going to walk away with 100 percent of their winnings if they are following the ‘letter of the law’. It doesn’t matter if it is $5 or $500,000,000 – if you gamble and win you will owe a percentage of that money to the government.
An estimated value will be tax owed when the prize is an item such as a car, trip, appliance or other such award. Giving a percentage of the jackpot to Uncle Sam may not seem appealing, but there are ways to circumvent the ‘cut’ when filing taxes if meticulous records of ‘gambling adventures’ are maintained. Before you head to the casino, buy that raffle or lottery ticket, or join the office pool bear in mind that should you win you are subject to taxes. Continue to enjoy your gaming ‘entertainment’ of choice because despite the minor tax-sacrifice, winning is just plain fun!
If you love to play roulette, play blackjack, play craps, or any other number of casino game, the tax is a flat percentage of the lucky pot – whether you win big, or win small. Casinos will issue a W2-G, 1099, or will collect tax ID information before they pay-out the winnings. Gamesters - be advised – even when you are not issued a W2-G by the casino – the government still wants their chop and you are still legally mandated to inform them of your good luck. Line 21 of the federal 1040 tax form is the critical line for ‘other- income’ where the spoils are to be reported. The reality is that many folks will not claim the pot on their taxes, some intentionally so and others because they are simply confused by what constitutes ‘gambling’ and which jackpots they are legally obligated to disclose at tax time. The government expects all taxpayers to inform them of their good fortune, regardless of the size of the jackpot or the value of the prize.
What constitutes gambling and when should winnings be reported? Diligent taxpayers will report all of their receipts – from casinos, race tracks, lottery, raffles, and more. Even poker, considered by some to be a game of skill rather than gambling, is subject to the rule for taxation. When the casino is on an Indian reservation, customers will still owe taxes if they win. The fact that Indian reservations have established distinct tax arrangements does not transfer to the casino patrons or any jackpots they may achieve. The State may also take a portion and the percentage for which a winner is taxed will vary from State to State. Some will take a percentage based on how much is won, others take a flat percentage, and several States tax nothing at all.
What Games are Taxed and Where’s the Break?
It may be explained best at Bankrate.com as they advise that there are various levels of required reporting for taxation is as follows: $5,500 or more for poker tournament loots, $1,500 or more in Keno, $1,200 or more for slot machine jackpots and bingo games, and $600 or more at horse race-tracks when the win is at least 300 times the wager that was made. Interestingly, in 2007 there were 1.6 million people who filed a total of $27 billion in casino, raffle, lottery, and race-track spoils. That same year 987,000 of those folks claimed $19 billion in ‘gambling loss’ write-offs. The ability to claim gambling losses could very well offset the percent that you are going to fork-over to the government in taxes. It may not be the best option for everyone who finds good luck at the poker tournament, at the blackjack table, that monthly office pool, and any number of gaming or wagering in which the participants stand to earn ‘income’, whether it is actual cash, or the cash value of merchandise.
Should the lucky victors elect to claim gambling losses throughout the year, it is crucial to maintain excellent records of all money spent on gaming. A log or journal of locations, dates, and amounts won is critical, as will be saving lottery tickets, W-2G’s and 1099’s received from casinos, and any other records that document gambling that did not result in a loss. See line 28 on the 1040/Schedule A to claim as much in losses as you win throughout the year. Check the standard deduction schedule prior to opting for the itemized return as there are cases in which the standard deduction will be more feasible than writing off the losses.
Make a mental note to self that the casinos and any establishment that provides you with a record of your earnings, such as the 1099 or W2-G will be reporting your tax ID information and jackpots to the government. Therefore the wise winning gamer will report any and all proceeds in order to avoid any serious penalties or negative consequences in the future. Failure to provide your tax ID information to the casino when you strike it big will likely result in the withholding of 28 percent of the total bonanza! Winning at games such as blackjack, roulette, baccarat, and craps will not result in the casino issuing the W2-G regardless of the amount won.
The amount won will, however, still be taxable and it is up to the gambler to notify Uncle Sam and share the joy of winning with the government. The bottom line is that whether you choose to play slots at the casino, play poker in a tournament, try your luck on lottery tickets, or play card games for actual cash wagers at the neighborhood’s covert and ‘illegal’ gambling operation the law says pay a percentage and share your ‘wealth’. Allow this information to guide you most effectively to through your gaming pleasures and help to stay ahead of the game when it comes to the cut you are going to owe when you win!