Chips and Cards

You just had a great night at the casino. You won big! Now, what to do with your new found extra cash? Well, first, the government wants their piece of the pie. When you win, so does the government. It’s called taxes.

Like any other income, gambling winnings are completely taxable. That’s the bad news. But the good news is, unless you were really lucky and won on your first try, amateur gamblers can actually deduct the losses incurred before hitting it big. Losses are deductible only to the extent of winnings and only if deductions are itemized. This means that you can’t claim a net loss—you can only reduce your winnings down to zero. In other words, if you won $5,000 but lost $20,000, you can only claim $5,000 in losses which would reduce your winnings down to zero.  Gambling losses can be combined for husbands and wives and can be combined throughout the duration of the tax year.

Payers (casinos and gambling establishments) are required by law to report gambling winnings over certain amounts through a form W-2G. You’ll receive a copy of this form, and so will the IRS. So, if you were planning on just not claiming your windfall, you’re out of luck. The IRS WILL KNOW about your new found wealth.

When you go to deduct your gambling losses, the IRS isn’t just going to take your word for it. You’re going to need hard evidence to back up the losses you plan to claim. That’s where a “gambling diary” (layman’s terms for the IRS’s “contemporaneous written gambling record”) can come in handy. Every time you gamble, include in your notes: the date, who you’re with, where you are, and what gambling activities you are engaged in. Include the amounts you win and lose as well as any other verifiable evidence (wager tickets, lottery tickets, slot machine and table numbers, etc.) If you are a frequent gambler, it may be a wise idea to have a checking account just for gambling activity so that all transactions are located in one place. It also may be helpful to use a player card, if available, so as to keep all transactions in one place and track the amount of time spent gambling. Casinos also track all of your winnings and losses and will, upon request, provide you a record at the end of the year for tax purposes.

CarSuppose your big gain wasn’t cash winnings. Maybe you got lucky and won an exotic vacation or a car. Uncle Sam still wants his fair share. In this case, you’ll have to take the fair market value of the prize you won and claim it as income. Most times, the payer (the place you won the prize from) will send out a 1099-MISC form which includes the cash value of the property. You’ll need to include that value on your income taxes as additional income and pay the applicable taxes. In most cases, winning a big prize ends up pushing you into a higher marginal tax bracket, therefore costing you more money.

Now that the euphoric moment of being the big winner has passed, it’s time to face the music…the dreaded tax tune. Wealth Builders CPAs & Consultants can help. We are an experienced team of financial and tax experts. Let us help you navigate the choppy waters of deducting gambling losses and claiming the remaining winnings. Call us today for a free consultation!

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Bradford, W. Murray. “The Gambler’s Tax Guide – How to Protect Your Winnings from the IRS.” Bradford Tax Instutite, Aug. 2017, bradfordtaxinstitute.com/Content/Gamblers-Tax-Guide.aspx.

Backman, Maurie. “Are Gambling Winnings Taxed?” The Motley Fool, 19 Jan. 2017, 12:42 PM, www.fool.com/retirement/2017/01/19/are-gambling-winnings-taxed.aspx.

“Can You Claim Gambling Losses on Your Taxes?” Intuit Turbo Tax, turbotax.intuit.com/tax-tips-jobs-and-career/can-you-claim-gambling-losses-on-your-taxes/L4IQ3IAWt.