Gambling often becomes a big topic around tax season. Whether you've won a little or a lot, gambling winnings are generally taxable. Understanding how those winnings affect your taxes can make filing season much less stressful. But how do you know what winnings are taxable? We'll explain that and much more in this month's blog.
Yes, Gambling Winnings Are Taxable
All gambling winnings are considered taxable by the IRS. This includes cash winnings from any gambling activity, including slot machines, bingo, keno, sports betting, lotteries, or horse racing, as well as any non-cash prizes like cars or trips, which are taxed by their market value.
When it's time to file your tax return, you may receive a Form W-2G if your winnings meet certain reporting thresholds. Whether or not you receive a W-2G, you're still required to report all gambling winnings on your federal tax return using Form 1040 or 1040-SR. If you didn't receive a W-2G, simply report your winnings as part of your income when you file.
Can Gambling Losses Lower Your Tax Bill?
Many people assume that gambling losses automatically offset gambling winnings, but that's not how the tax rules work. In fact, gambling losses may be deductible, but only up to the amount of gambling winnings you reported on your tax return. In other words, losses can reduce taxable gambling income, but they cannot create a net loss for tax purposes.
It's also important to know that gambling losses are generally deductible only if you itemize your deductions. For those taking the standard deduction, you must still report all of your gambling winnings, but you typically won't receive a tax benefit for your gambling losses.
You May Need to File a Tax Return in Another State
Different states have different gambling laws. If you win money while gambling in another state, you may be required to file a tax return there in addition to your home state. Making sure to do your research about that state's rules–or talking to a tax professional before you file– can help lower the risk of being caught off guard by different states' rules.
Keep Good Records Throughout the Year
The best thing you can do to make tax season easier is to keep detailed gambling records throughout the year. Good documentation can make reporting your winnings and losses much less stressful. Here are some things you should document:
The date, location, type of gambling activity, buy-in, cash-out, and your net winnings or losses for each gambling session
Receipts, tickets, or other documentation that verifies significant wins or losses
Records related to any professional gambling expenses, if applicable
An ongoing record of your gambling losses
The easiest way to organize this information is with a gambling log. Keeping these records throughout the year can save you time, reduce stress, and make tax season much smoother.
Don't Let Tax Rules Take the Fun Out of Winning
Gambling can be an enjoyable activity when done responsibly. Understanding the tax rules ahead of time can help you avoid surprises when it's time to file your return. If you have questions about gambling winnings, losses, or how state tax laws may affect you, Angolano & Company is happy to help. Stay informed, and happy gambling!