Have Gambling Winnings? You Can Bet on a Tax Season Shake-up

No one likes rolling the dice when it comes to the IRS. Come tax time, taxpayers are often surprised when a lucky payday becomes a tax return headache. Here are some tips so a fun activity doesn’t add up to tax trouble.

Taxation of gambling income

All income is taxable and that includes gambling winnings. You are required to report any winnings you receive including, but not limited to:

• slot machines
• table games (e.g. cards, roulette)
• mobile gambling
• sports betting
• fantasy league winnings
• horse racing
• bingo
• game shows
• raffles
• lottery or sweepstakes prizes

The winnings may be cash, but would also include the fair market value (FMV) of prizes such as a car, boat, house, or vacation package. When you win, the payer is required to give you a Form W-2G. Online betting sites may issue a Form 1099-MISC, or if you receive your winnings through third-party payment apps such as PayPal, Venmo, or CashApp, you may receive a Form 1099-K. Receipt of these forms should be your clear signal that you’ve been dealt a taxable event.

All in: How the tax math works

There is a threshold that will automatically trigger reporting of your winnings to the IRS:

• $1,200 on slot machines or bingo
• $5,000 on poker tournaments, lotteries, and sweepstakes (reduced by the wager or buy-in)
• $600 on sports betting and other gambling wins (if at least 300 times the amount of the wager)

Unlike a business, gambling winnings are reported on one part of your tax return while any offsetting gambling losses are reported as a miscellaneous itemized deduction:

• Your income is increased by the amounts listed on W-2Gs and any other winnings you received.
• If you do not itemize, you cannot deduct any gambling losses during the year.
• If you do itemize, you must be able to substantiate gambling losses with an accurate diary, receipts, tickets, entry fees, wager statements, and other records.
• You cannot deduct more in losses than winnings.

No bluffing: Tips to minimize the tax time surprise

• Accurate and thorough records are a must.
• Plan to withhold from some winnings to pay federal and state tax obligations. Most winnings reported on a W-2G will withhold at a flat rate of 24%.
• If you anticipate a large sum of winnings in a given year, consider submitting quarterly estimated tax payments.
• To offset losses against winnings, losses can be cumulative and do not need to match winnings for time and date (g. a year’s worth of bingo losses can be offset against one major win), as long as you have precise records.
• Use the casino as a resource. Join their player’s club for access to a YTD activity statement. Casinos can also help you understand and record costs and losses.
• Business tax rules apply if you are a professional gambler. This is tough to defend with the IRS, so make sure you are working with a knowledgeable CPA.
• If reselling non-cash merchandise prizes, be cautious of the reported FMV. If you sell an item for less than what is listed on your Form W2-G, your personal loss is not tax-deductible.

Gambling and Taxes: A Summary [Infographic]

Gambling Winnings and Taxes by Alloy Silverstein Accountants and Advisors