Reporting Gambling Income and Losses

In December 2016, MGM National Harbor, located just minutes from Washington, D.C., had a grand opening. If you are thinking about heading out that way to try your luck in the casino, read this article before you go.

Gambling winnings are fully taxable and must be reported. Yes, gambling winnings are always taxable income even to the casual or recreational gambler. What’s more, if you win non-cash prizes, such as cars, trips, or flat-screen TVs, you’ll have to pay tax on the fair market value of the prizes.

Four Things Tips to Minimize the Tax Bite When Reporting Gambling Income

Here are four things you need to know that may help you minimize the tax bite on your gambling winnings.

#1: Payer tax form

If you win, the payer may give you a Form W-2G, Certain Gambling Winnings. The casino payer also sends a copy of the W-2G to the IRS. The payer must issue the form based on the type of gambling, the amount you win, and other factors. You’ll also get a form W-2G if the payer withheld income tax from your winnings. IRS Publication 505, Tax Withholding and Estimated Tax, has information on withholding on gambling winnings.

#2: How to report winnings

You normally report your winnings for the year on your tax return as “Other Income” on line 21 of IRS Form 1040 (2016). You must report all your gambling winnings as income. This is true even if you don’t get a Form W-2G. In some cases, you may be required to pay estimated tax on your gambling winnings, so don’t wait until tax filing season to pay the tax due.

#3: How to deduct losses

You can deduct your gambling losses on line 28 of Schedule A, Itemized Deductions (2016). The total you can deduct, however, is limited to the amount of the gambling income you report on your return. You must support the losses with strict record-keeping. If you do not itemize deductions, you cannot deduct your losses.

#4: Keep gambling receipts

Keep detailed records of your wins and losses. This means keeping a gambling log or diary, receipts, statements, or tickets. Or, consider using a casino player card through which you can get a win & loss statement for the entire year.

If you are a professional gambler, you will report your profits and losses on Schedule C like any other sole proprietors. But you also can itemize to deduct gambling losses up to the amount of your winnings.

See IRS Publication 525, Taxable and Nontaxable Income, for rules on this topic. IRS Publication 529, Miscellaneous Deductions has more information on losses and lists some of the types of records you should keep. You can download and view both publications on www.IRS.gov/forms at any time.

Contact Us Today

If you have more detailed questions about reporting gambling income and losses, contact the Sodowsky Law Firm at 703.968.8000.