Today we are going to talk about whether you must report gambling winnings on your taxes. It’s a simple question, but the answer is a little more complicated.
Gambling winnings are reportable on your federal and state income.
1. Can You Deduct Your Losses Against Your Winnings?
Check out this video for a detailed explanation of tracking gambling losses and wins.
2. Do I Have to Report My Winnings?
Often gamblers don’t understand the significance of this question. If you win a small amount, it may not be an issue. However, if you win a significant amount, you will be issued a Form W-2 G from the casino or gambling establishment that you frequent.
Why is this a problem? Well, sometimes a gambler will be issued a Form W-2 G and think that their gambling winnings are reported to IRS. While this form does ensure IRS withholds some taxes from your winnings, it does not paint the whole picture.
Think of Form W-2 G like a W-2 that you receive from your employer. Yes, taxes are reported and withheld, but you still need to report ALL of your gambling winnings.
Why Do You Still Need to Report Your Own Taxes for Gambling?
1. You May Be Able to Avoid a Future Audit
If you don’t correctly report all of your gambling winnings, this could result in an audit. If you are audited, and IRS doesn’t see your gambling income, they may report it for you.
This could result in a 20% penalty for unreported income. To avoid this, ensure all gambling income is reported.
2. If You Win Enough, the Casino May Withhold 24% of Your Winnings
The main reason you want to accurately report your winnings is because doing so is in your best financial interest.
If you report your winnings, they will only be subject to a 10-12% tax. If you don’t report your winnings, the casino may withhold up to 24%. That is a HUGE difference.
Keep in mind, if the casino withheld 24%, then there could be a refund due to you. To get that refund you would need to hire an experienced tax attorney.
The best course of action is to accurately report all of your winnings when you file your taxes.
For more information about claiming refunds, please watch this video.
For further information and assistance in understanding debt and taxes for gamblers, reach out to Tax Law Offices today!
