A Tax Fact from The Tax Institute at H&R Block

Have a good day at the track? A good night at the casino? Choose some lucky numbers in the lottery?

Good for you! Lots of people enjoy gambling for recreation and the chance to win big – or even a little – and professional gambling is also on the rise, with the popularity of card games, such as Texas Hold ‘Em and other versions of poker.

But remember: all of your gambling winnings are considered fully taxable income by the IRS, and must be reported on your federal tax return and on many state returns. Let me say that again: ALL of your gambling winnings are considered fully taxable income by the IRS and MUST be reported on your federal tax return and on many state returns as well.

So what’s considered gambling income?
Gambling income that must be reported includes, among other things, winnings from lotteries, raffles, horse races and casinos, as well as from online gaming establishments.  Besides cash winnings, gambling income also includes the fair market value of prizes, such as cars and trips.

Depending on the type and amount of your winnings, the gaming establishment that pays out may provide you with a Form W-2G and may have withheld federal income taxes from your winnings already.  The exception is winnings from table games such as blackjack, craps, baccarat and roulette, which don’t require a W-2G, regardless of the amount.

However, all gambling winnings must be reported, regardless of whether any portion is subject to withholding. In addition, you may also be required to pay an estimated tax on your gambling winnings.

Lady misfortune
But there’s good news for losers: Federal tax laws allow you to deduct gambling losses, as long as you itemize, also report your winnings, and the amount of your reported losses doesn’t exceed your reported winnings. 

How to claim your winnings and losses
To claim gambling losses, report them as a miscellaneous deduction on Form 1040, Schedule A.

Keeping records is important. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show both your winnings and losses.

In addition, the IRS requires that an accurate diary or similar record be maintained for substantiating your wins and losses. The diary must contain specific information, such as the date and type of wager, name of the gaming establishment, etc.

And you must keep records, such as wagering tickets, canceled checks and credit card and bank records, to substantiate the gambling diary.

Here are some other tips on gambling tax laws from www.casinogaming.com:

• Professional gamblers must file tax returns as self-employed businesses, using Schedule C.
• The value of “comps" received are considered to be gaming winnings and should be included in your total winnings.
• Married couples filing jointly must combine their winnings and losses, reporting only one figure for each.
• The IRS does not allow "lumping," or the practice of reporting one total figure for winnings and no losses; or reporting nothing if your net from gambling is a loss. 

It’s important to remember that casinos and card rooms are subject to money-laundering rules, and must report aggregate cash transactions of $10,000 or more in any one day to the IRS. They also can make out such reports for amounts as low as $2,000, if they are suspicious.

Once a casino has your Social Security Number and ID on record, they can issue these Cash Transaction Reports, or CTRs, without notifying you.

So, have fun gaming and enjoy your winnings, but keep in mind the tax laws to avoid an audit or other action by the IRS.

This Tax Fact is brought to you by The Tax Institute at H&R Block.

To view other helpful tax information or listen to our Tax Fact podcasts, visit www.digits.hrblock.com

As always . . . everyone’s tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.

This Tax Fact is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties.