It’s always extremely exciting when you rake in impressive winnings when playing your favorite online casino games or when out for the night at a land-based casino. Whether you’ve won a game of online poker, one of the many variety games at an online casino, or the jackpot you’ve been chasing on an online slot, it’s hard to beat the feeling of winning.
Unfortunately, though, the high that comes with a win can quickly turn into a downer if you don’t ensure that you’re on the right track regarding your taxes. So, are casino winnings taxable?
The answer, in short, is yes. The IRS along with local and state governments generally consider any money that you have received to be taxable income. While there are some reporting thresholds laid out in the tax code, it’s better to be safe and assume that every penny you win while gambling is taxable.
Understanding Your Tax Liability for Cash and Non-Cash Gambling Winnings
Any gambling winnings, whether cash or non-cash, are fully taxable and need to be reported to not only the IRS but also the appropriate local and state revenue departments, if relevant to your situation. You also need to pay the appropriate tax on those winnings.
Common examples of non-cash winnings are cars and vacations. Typically, the entity that grants you these prizes will provide you with a 1099 stating the fair market value of the prize but if they don’t, it’s your responsibility as the taxpayer to report the fair market value as part of your income for the year.
It’s extremely important to keep in mind that winnings are not the same as profit. You must report your winnings for the year as income even if you spent more than you won on gambling.
While you need to report those winnings, there is also a way that you can diminish the tax liability they create. It’s something you need to approach carefully, however, as choosing to do so could create problems if you don’t follow the correct procedures.
Are Gambling Losses Tax-Deductible?
Gambling winnings are indeed taxable, but the saving grace is that gambling losses are also tax-deductible as far as the IRS is concerned. You can list and report your gambling losses for the year as itemized deductions under Schedule A (which is used in conjunction with Form 1040).
When you use a Schedule A to claim itemized deductions instead of the standard deduction, your itemized total is then deducted from your taxable income. It’s important to keep in mind, however, that you can only deduct your losses up to the amount you report as gambling winnings.
Another thing to keep in mind is that choosing to itemize your deductions only makes sense if you have eligible deductions that exceed the standard deduction for your tax bracket. Otherwise, you might be cheating yourself out of some potential refund and doing a lot of extra work for nothing.
Players should note that only their gambling losses themselves are tax deductible. If you spent money on hotel rooms, meals, or other expenses while you were gambling, those are not gambling losses.
Finally, most local and state governments in the United States do not allow players to deduct gambling losses from their income taxes. Even if you choose to itemize and claim your deductions on your federal taxes, you should check to see whether that is an option for you for your other returns.
If you want to be certain that you’re not paying too much (or too little), you must keep comprehensive records of the outcomes of your sessions whenever you play casino games. Along with an accurate gambling log, this could also mean holding onto payment slips, statements, and receipts detailing how much you’ve won or lost.
After all, you’ll need to supply proof of any winnings and/or losses to ensure they’re properly taxed or deducted. Playing with an online casino can help with this because BetMGM makes a record of your activity easy to access.
What Details Should Be Included in My Gambling Log?
If you’re going to claim gambling losses on your federal return and/or have gambling winnings to report, it’s advisable that you not only keep detailed records of your activity but store them for at least five years in case there are questions about your returns.
According to the IRS, your gambling log should include the following information:
- The date on which you gambled.
- The type of gambling activity in which you took part.
- The name and URL of the online casino or the name and address of the land-based casino or gambling event.
- The names of other people taking part, if applicable.
- How much money you won and lost in each session.
A common mistake that many gamblers make is deducting their losses from their winnings and reporting the difference. This is not only an incorrect procedure but could result in fines.
The best thing to do is forget about profit altogether and treat your losses and winnings as two separate calculations. In many cases, the entity you gambled with will do a lot of these calculations for you in the IRS Form W-2G.
What Is Form W-2G and When Is It Necessary?
Form W-2G is the document dedicated to reporting how much you’ve won through your gambling activities and how much, if any, has already been withheld for tax purposes. It’s like your W-2 from your employer but specifically for gambling winnings.
Usually, Form W-2G is sent to you by the casino or event organizer responsible for paying out any significant winnings. Federal law requires these forms to be sent out by Jan. 31 of each year but there are stipulations around when the gambling companies must prepare them.
Generally, you can expect to receive Form W-2G if you won:
- Over $5,000 (reduced by the buy-in or wager) while playing the lottery, sweepstakes, or a casino table game such as poker.
- Over $1,200 (not reduced by the wager) while playing bingo or a slot machine.
- Over $1,500 (reduced by the wager) while playing keno.
- $600 or more if the amount you won is at least 300 times your wager (you will have the option to reduce the winnings by the wager).
You’ll also receive the form if the casino or event organizer withheld any tax (usually 24%) from your winnings. You should never assume that any tax withheld absolves you of your need to report those winnings or that those withholdings are sufficient to cover your tax liability.
Remember, not everyone who plays casino games will receive and need to complete and submit Form W-2G, but everyone who takes part in any form of gambling with real money needs to report their winnings on their tax return. If you don’t receive Form W-2G, you’ll need to report your winnings as “other income” on Form 1040.
If you have questions, the best thing to do is consult a certified accountant, a tax attorney, or the relevant revenue department like the IRS. Taking a little extra care and time not only gives you peace of mind but helps avoid an audit along with the potential consequences of failing to report or underpayment.
How Much Tax Do I Have To Pay on My Gambling Winnings?
Your tax liability on your gambling winnings is relative to your total taxable income for that tax year from all sources. The rate you pay will depend on which tax bracket you are in.
There could also be local and state income taxes to be aware of. While the entity you gamble with might withhold part of your winnings, that might only alleviate part of your tax liability on them.
Again, it’s better to be safe than sorry and consult a tax professional. That is another reason keeping detailed records is important so that professional can give you an accurate appraisal of your situation.
How Can I Deduct My Losses?
Your gambling-related deductions should be included as “miscellaneous deductions” on Schedule A. Keep in mind that you can’t claim more losses than you won while gambling during the same tax year.
Expenses you incur while you are gambling like hotels and meals are not gambling losses in the eyes of the IRS. While some people might be able to claim them as business expenses, that is a separate deduction.
If you gamble in the United States and win, the IRS expects you to report and pay any tax owed on those winnings regardless of how much it cost you to secure those winnings. That applies regardless of your citizenship status.
Do Nonresidents Need To Pay Taxes On Gambling Income in the U.S.?
With attractions like Las Vegas, which is a city with an incomparable gambling culture, it’s no surprise that the U.S. is one of the top gambling destinations in the world — drawing in a huge number of gambling enthusiasts every year. However, if you’re not a citizen or resident of the U.S., it doesn’t mean the IRS is going to let you off scott-free.
You’ll still need to report your winnings on FORM 1040NR, and this income is generally taxed at a flat rate of 30%. The IRS considers your gambling winnings income that you made while in the U.S.
Unfortunately, as a nonresident, you won’t be able to deduct any gambling losses from the income amount. However, there is a silver lining if you’re a Canadian citizen.
Due to a tax treaty between the U.S. and Canada, Canadian citizens are allowed to deduct their gambling losses up to the amount of their winnings. Canadian citizens should check the statutes relevant to their province or territory for any further tax obligations.
Casino Winnings and Tax for Professional Gamblers
If you’re a professional gambler (and gambling is your primary profession), your winnings are typically treated as standard earned income and taxed at the regular income tax rate. As a self-employed gambler, it’s crucial to keep thorough records of both the money you earn and the expenses you incur.
These records need to be organized using Schedule C, as specified by the IRS. Professional gamblers can also deduct losses as legitimate business expenses using a Schedule C instead of a Schedule A, which can help offset your overall tax liability.
For any local and state taxes, the same principles apply to you as they would any other self-employed person. Your winnings are your income and are taxed the same way.
Additionally, if gambling is your primary source of income, you can claim some other expenses as business expenses. In this situation, it’s even more crucial to employ the services of tax attorneys to ensure that you comply with all relevant statutes.
Play at the BetMGM Online Casino
Now that you know everything there is to know about how gambling impacts your tax return, it’s time to have some fun. At BetMGM, you’ll find a diverse menu of casino favorites, including casino table games, online slot machines, and live dealer casino games.
Whether you’re just learning how to play casino games or you already have plenty of experience trying your hand at the world’s best casino games, you’re sure to find hours of entertainment right here. While paying tax on your winnings isn’t the most fun element of gambling, you can still try your luck when you register for BetMGM.
