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 considers any money that you win while logged into an online casino or when playing in-person at a land-based gambling establishment or event as taxable income. Other forms of winnings that you’ll need to pay tax on include any winnings collected through successful sports betting, winning the lottery, or winning money on a game show. Even tiny winnings from things like scratch cards need to be reported and taxed.
Understanding Your Tax Liability for Cash and Non-Cash Gambling Winnings
Basically, any gambling winnings, whether cash or non-cash winnings, are fully taxable and need to be reported.
Cash winnings refer to money you win through things like the lottery, bingo, raffles, slot machines, and any online casino game (including online casino bonuses). Non-cash winnings, on the other hand, are things like vacations and cars. When you’re figuring out the taxable income you need to report, you’ll need to include the fair market value (FMV) of any non-cash winnings.
Luckily, it’s not all bad news. Read on for details on your casino winnings and tax responsibilities.
Are Gambling Losses Tax-Deductible?
Gambling winnings are indeed taxable, but the saving grace is that gambling losses are also tax-deductible. So, 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.
If you want to be certain that you’re not paying too much (or too little), it’s vital that you 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.
What Details Should Be Included in My Gambling Log?
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 or lost.
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.
Usually, Form W-2G is sent to you by the casino or event organizer responsible for paying out any significant winnings. You can expect to receive this form before the end of January following the year in which you won the money in question.
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 (which is expected to happen in most of the favorable outcomes mentioned above).
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.
Did you know? Any money won from playing a skill-based casino game, like poker or blackjack, usually doesn’t involve withheld taxes – although you’ll still need to report these winnings in your return.
How Much Tax Do I Have To Pay on My Gambling Winnings?
You can expect to pay a flat rate of 24% tax on any money you win as a result of your gambling activities, but if you win more than $5,000, your winnings will usually be subject to income tax withholding.
There are also state taxes to be aware of, and these vary quite dramatically from state to state, so be sure to research these rules when compiling and submitting your tax return.
The Casino Has Already Withheld Tax – Will I Have To Pay More?
That depends. The IRS will evaluate your overall income and your complete tax return, and then, relevant to your gambling winnings vs. losses and your tax rate, you may have to pay more in tax, or you may get a portion of your money back.
How Can I Deduct My Losses?
Your gambling-related deductions should be included as “miscellaneous deductions” on Schedule A. There’s no 2% limit for these deductions, so you can deduct more than just the amount over 2% of your adjusted gross income.
Note that it’s important to itemize your deductions if you want to deduct your gambling losses and to report all winnings and losses separately. It’s not correct to simply report a total amount, and you could be penalized for doing this.
Finally, be aware that you’ll only be able to deduct your gambling losses up to the total amount of your winnings.
Note that tax rules differ for professional gamblers. All the information provided above is intended for people who play casino games for fun in their free time.
Do Nonresidents Need To Pay Taxes On Gambling Income in the U.S.?
With attractions like 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 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%.
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.
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.
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