Gambling comes in a variety of forms, from horse racing to sportsbook betting, from scratch-offs to bingo and from casino games to online gambling. For many gamblers, their annual losses will exceed their annual winnings. While many gamblers will not bother to report losses and ignore Uncle Sam’s requirements, you don’t have a choice when it comes to reporting winnings.
If you get past a certain earnings threshold, you will be given a W-2G from the gambling establishment. You should expect a W-2G if you:
- Win $1,200 or more from bingo or a slot machine
- Win $1,500 or more from KENO
- Win $5,000 or more during a poker tournament
- Win $600 or more from all other games if the payout is over 300 times the wager
Unfortunately, many gamblers make the mistake of only reporting winnings if they receive a form W-2G, but the IRS does not agree with that. You must report winnings on your returns.
You can deduct gambling losses up to the amount of your winnings and only if you can itemize your deductions. If you can’t itemize deductions, you will be forced to pay taxes on your gross winnings, even if you have an overall loss. The IRS considers a diary or record adequate for documenting losses. Your record should include:
- The date and type of your wagers and activities
- The name of the gambling establishment, along with location or address
- The names of other people present with you at the gambling establishment
- The amount lost or won
You should also save any documentation that you get, like tickets, credit slips and checks.
- You cannot net winnings and losses for gambling, so all of your winnings will be added into your adjusted gross income (AGI), which could limit other deductions and benefits.
- If you cannot itemize your deductions, you cannot deduct your losses. That means that if you take the standard deduction, you have to pay taxes on the total of your winnings.
- If your winnings increase your AGI past the Social Security benefit threshold, you can end up paying tax on 50-85% of those benefits.
- Adding gambling wins into your family income can also make you ineligible for a number of health insurance benefits and subsidies.
Avoid Tax Trouble with Miles Tax Advisory
Tax time is here, which means now is the time to gather up your paperwork and start the filing process. We are always here to assist you!