Did you know that roughly 85% of Americans have gambled at least one time in their lives? Beyond that, three out of five people have gambled in the previous year.
Gambling can be a fun, thrilling, and exciting activity when done responsibly. However, there have certainly been many cases throughout history where individuals relate to gambling with an addictive and destructive quality. There are a number of ways that you can ensure that you are gambling responsibly, including setting a spending limit ahead of time, setting a time limit, and avoiding gambling when you’re feeling upset.
While going to the casino or betting on a sports game might seem like all fun and games, there are also tax implications to gambling. At the end of the day, the IRS is going to want its cut of your winnings. Reporting gambling wins on your tax returns is required.
It’s important to make sure that you stay above board with the IRS, otherwise, you can face dire consequences. For this reason, let’s take a look at everything you need to know about how to pay taxes on your gambling wins.
Gambling Wins and Taxes: The Basics
When you win big while gambling, it’s important to understand that not all of that money is yours to keep. This is fully taxable money, meaning that you will have to give a portion of it to the Internal Revenue Service.
This doesn’t just apply if you hit the jackpot at a casino. You are also required to pay taxes on gambling winnings from horse races, game shows, sweepstakes, lotteries, and more.
If you really hit it big and win over a certain amount of money, 24% will be automatically deducted from your winnings.
At tax time, you might get some of your money back or have to pay more money depending on your tax rate and how much you won. The good news is that you can deduct gambling losses. However, it’s essential to keep good records because you can only deduct up to the amount of reported winnings.
Another point worth making is that U.S. states were given permission by the Supreme Court in 2018 to legalize sports betting. As of this point, sports betting is fully illegal in seventeen different states. However, there is already legislation in motion in a handful of other states.
How Much Should You Expect to Pay If You Win Gambling?
If you are gambling in a game of chance that is operated legally, your taxes might be deducted on the spot if you win over a certain amount. They will give you a copy of a specific IRS form known as W-G2 as a receipt and record of the transaction. As a part of this transaction, 24% of your winnings will be deducted on the spot.
How much constitutes a high enough amount of money for this immediate withholding depends on what game you are playing. For lotteries, wagering pools, and sweepstakes, it’s over $5,000. For Bingo Games and slot machines it’s $1,200, and for keno it’s $1,500.
It’s worth noting that the 24% that is deducted from this high winnings is just an estimated tax. That means that when you file your taxes you could end up owing more money or receiving some of it back in the form of a refund.
Remember, this only applies to games of chance. When it comes to games of skill, such as blackjack, you still have to pay taxes on the winnings. However, with this type of game you won’t have money automatically withheld in the same way you can with games of chance.
Continue reading our article ” Are Gambling Wins Taxable?” to learn what happens if you win big at Casino.
What Happens If You Win Big at the Casino?
If you surpass the above listed limits for casino winnings, there is a whole process that will begin unfolding. To start, staff at the casino will request identification for you. They will also need a Form W-9 unless one is already on file.
This is an IRS form that can be used to verify your name, taxpayer identification number, and address. You will need to provide two different forms of ID in order to receive your winnings. If you decline to do this, your gambling winnings will be help for a specific period of time to allow you to provide the documents required.
Depending on which state you’re gambling in, the state itself might also withhold some taxes. That being said, the home state of Las Vegas, Nevada, isn’t one of these states.
When it’s time for you to do your taxes, you’ll want to gather all of your W-2Gs from the previous year. Additionally, you’ll want to collect your records of other gambling winnings you have. You will then need to declare them on your taxes.
It’s important to understand that you can only use your losses against your winnings to reduce your tax burden if you are itemizing your taxes. If you are taking a standard deduction, this simply doesn’t apply.
It is generally advised that you have withholdings taken out of any big wins that you have unless you’ve already consulted with a tax professional about the matter.
Are There Exceptions to Paying Taxes on Gambling Winnings?
There are certain table games where Casinos don’t have to issue tax forms or withhold taxes when they win large sums of money. These include roulette, blackjack, and craps. These are all considered to be games of skill instead of chance-based games.
At the end of the night when you cash in your chips, the casino doesn’t have any record of the amount of money you started with. That being said, you are still just as obligated to pay taxes on your gambling winnings. It just means that the responsibility for reporting the income falls on your rather than the casino.
It’s essential that you keep good records of both your winnings and your losses. This can end up saving you money on taxes if you can prove how much money you spent in order to make the money you made.
How Do You Report Gambling Winnings?
All taxpayers have to file taxes each year. If you won some money gambling during the previous tax year, you can report this income in the “Other Income” section found on Form 1040.
Your total income for the year will determine the real amount that you are owed or that you owe. This means that even if 24% of your winnings were deducted at the Casino or by another legal game operator, you still might owe more money or be entitled to a refund.
Basically, your income (including the money that you won) will need to be over a certain amount in order for your winnings to amount to a higher tax bill. You might even find that you are owed a refund if your total income falls below a certain amount.
Is Gambling Income Reported to the IRS By Casinos?
Casinos do report winnings to the IRS, but only in certain circumstances. Different games, as discussed above, have different thresholds that mean that a casino must withhold winnings and give you a tax form as a record.
Are Gambling Wins Taxable or not may vary if you do this for pleasure or as career. Continue reading to learn key details about how taxes impact you if “Gambling is your career”.
What If Gambling Is Your Career? How Do You Pay Taxes Then?
There’s a difference between getting lucky at the casino on your vacation and gambling full-time as a profession. If this is the case, then this is actually considered your regular earned income. You will therefore be taxed on your gambling income at the normal effective income tax rate that applies to you.
You will need to record both your expenses and your income in the same way a self-employed person would. You can do this by filing a Schedule C form.
(A Form 1040 Schedule C is a form that small businesses and self-employed people use to report their annual income or loss. You can learn more about small business tax forms here.)
Can You Deduct Gambling Losses?
Yes, you can deduct the money that you lose from gambling on your taxes. However, a very important note is that you can’t write off any gambling losses beyond your winnings. That means that if you run into a string of incredibly bad luck, you can’t look to your taxes as a source of good news.
(Are you curious to know what other taxes you have to pay in addition to income tax? Take a look at our guide on FICA and Medicare taxes.)
Are You Looking for More Helpful Tips When It Comes to Taxes?
Now that you have read “Are Gambling Wins Taxable?” you that Winning big at the casino or the horse races can be a rush, but at some point you’ll need to do the math on how much of that money is going to Uncle Sam.
It’s best to keep very detailed records of your gambling in order to be able to prove both your winnings and your losses. As an added bonus, keeping track of your gambling in this way can be an incredibly helpful way to stay self-aware about just how much money you’re spending and how much you’re gaining.
Are you looking to learn more about what you need to know to pay your taxes properly? If so, be sure to check out our library of resources.