Like to play the ponies? Hooked on Texas Holdem? Enjoy spending a day in a Casino out of the elements? Gamblers may love a bit of gambling, but there is a tax side to your gaming that you need to keep an eye on or suffer the wrath of the IRS.
The first thing to understand is gambling winnings are taxable. Lucky you. This means winning from every kind of game including the basics like lotteries to more sophisticated gaming like horse racing, craps, poker tournaments and sports betting. This is also true for winnings that include things other than cash such as vehicles or trips.
If you have a non-cash winning, the tax is based on the fair market value of the item. If the vehicle wouldve cost $35,000 at a dealer, that is the figure that will be used. Yes, most people end up selling their vehicle winnings to pay the tax. Hey, you still end up with cash!
Most gamblers get into trouble based on the belief that the IRS will have trouble figuring out if you won something. The agency will not. The casino, track or whoever is paying you must issue a W-2G if you have certain winnings and will actually withhold taxes from larger gains. In fact, the IRS often has a representative in the larger gaming institutions to congratulate you on the success.
So, how do you report these winnings? As always, we return to the 1040 form. The magic area is found on line 21. You simply report it there. Ah, but what about losses? Well, you can take them as well if you itemize deductions, but you can only deduct up to the amount you actually won. Put in practical terms, this means that you can only eliminate the gain, not actually create a loss for the rest of your gains.
Tax issues are rarely simple. The IRS would like you to just pay and pay, but you can get the detailed scoop on paying taxes on you winnings in IRS Publication 525 off the IRS site.