Taxes are not generally at the forefront of people’s minds when entering a casino or a racetrack. However, gambling winnings or losses can carry significant tax implications. Any money you win gambling is considered taxable income by the IRS.
Gambling income has its own set of rules, and is subject to strict recordkeeping requirements.
Here are 4 key tips about gambling and taxes:
1. Gambling income includes but is not limited to, money earned from casinos, lotteries, raffles and horse races. It includes cash winnings and the fair market value of prizes such as trips and cars.
2. All gambling winnings are taxable even if no W-2G is received
A W-2G is generally received when a person wins $600 or more, however you still have an obligation to report winnings less than that.
3. Gambling winnings go directly onto the front page of the 1040 on line 21 other income, whereas gambling losses are reported under itemized deductions
Gambling losses can only be claimed against gambling winnings, however the taxpayer must be the one who itemizes the losses, making it that much harder to claim them. More importantly, as of 2018 and onwards, the Tax Cuts and Jobs Act raised the standard deduction to $24,000 and therefore less people will be itemizing and able to claim their gambling losses.
4. Gambling losses can only offset gambling winnings in the year which they are lost
The concept of net operating loss carryforwards does not apply to gambling. If a person has $10,000 of losses in the same year they have $5,000 of winnings, the remaining losses cannot be carried forward to the following year.
To claim gambling losses the following is required by the IRS:
• The date and type of specific wager or wagering activity
• The name and address or location of the gambling establishment
• The names of other persons (if any) present with you at the gambling establishment (Obviously, this is not possible when the gambling occurs at a public venue such as a casino, race track, or bingo parlor)
• The amount won or lost
When a taxpayer fails to maintain or produce adequate books and records, the IRS will calculate the taxpayer’s taxable income by any method that, in its opinion, clearly reflects the taxpayer’s income. The IRS’s determination of taxable income in such cases must be reasonable in the context of the available facts and circumstances.
For further information on the tax implications of gambling winnings, contact your trusted Roth&Co advisor.
