Taxes on Gambling Winnings

by Jerry "Jet" Whittaker
June 19, 2006

Gambling can be very addictive and there is a lot of scope for fraudulent casinos to cheat the players and so the governing authorities must setup regulatory authorities and law enforcing agencies to ensure the rights of the gamblers. As such, there must be a source of revenue for these agencies to operate. This revenue comes from the taxes that are collected from the gamblers winnings.

Gambling need not be confined to the casinos, gamblers are constantly on the look out of ways and means to make a profit be it in the sports arena, political scenario, lotteries even the weather. In fact there may be ways and means of gambling that have not been thought of as yet.

What Constitute gambling winnings?

Gambling winnings must be reported to the relevant authority while filing your tax returns on the 1040, as gambling winnings are fully taxable as they are a form of income. Gambling winnings are taxed by both the IRS s well as the State. Professional gamblers are viewed as self employed business under schedule ‘C’. The gambler must make it a practice to keep a record of all winnings as well as gambling losses because you may deduct your gambling losses from your gambling winnings. The gambling losses you may deduct must not be more than your gambling winnings during the tax year. You must report the total of your winning sessions separately from your losing sessions. If you have not made any gambling winnings for the year then you cannot deduct your losses on your tax return. In addition to cash winnings you have to include any form of movable and immovable winnings, such as cars, appliances, houses etc., as well on your tax returns. Lotteries and raffle prizes that are paid in installments are also taxable and must be included in the tax returns as the annual amounts as well as the interest on the unpaid gambling installments. It is a serious crime to withhold any information on your gambling winnings from the federal authority so be sure to attach all your winning information with your returns.

What to include with your returns.

The IRS requires you to substantiate your diary with supplemental records such as the W-2Gs; canceled bank checks; wagering tickets or receipts; bank withdrawals; any receipts provided by the gambling establishment; credit card records. The W2-G is issued to players by the gambling establishment and submitted to the IRS by the casino for gambling winnings of $600 or more from wagering transactions. Winnings in excess of $1,200 from bingo and slot machines; Winnings in excess of $1,500 from keno minus the ticket amount bought on the winning game; Winnings in excess of $600 from horse racing or dog racing and if the winnings are at least 300 times the wager. W2-Gs are not required for winnings from table games regardless of the amount.

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