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Understanding Gambling Income and Losses

Niyati , Last updated: 17 October 2023  
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What is Gambling Income?

Gambling income is cash earned by placing a stake in an event or competition with an unknown result. It can range from casino winnings, betting pools, lotteries, raffles, and horse races to sweepstakes. Non-cash prizes like fully paid holiday trips and cars are also considered gambling income. The money generated is taxable and must be indicated on an individual's tax return.

Understanding Gambling Income and Losses

Understanding Gambling Income

Federal tax authorities have clear guidelines on how gambling income is handled by individual(s) gambling and the wagering establishment. In some cases, the gambling house will withhold 24% of gains for federal income tax.

The withheld amount is reported on a W-2G form given to the winner of an online gambling event or any other wagering activity and submitted to the Internal Revenue Service (IRS). A lucky winner who doesn't receive a W-2G form from the wagering house must still report their entire gambling income to the IRS.

However, casinos will still offer a W-2G form even if withholding isn't required for particular winnings. They include $1,500 or more from keno games, $1,200 or more from slots, and $5,000 or more from poker tournaments.

The total money earned from gambling minus the stake cost must be indicated on an individual's federal tax return. Per the IRS, taxpayers who aren't pro gamblers must highlight gambling income not displayed on a W-2G as 'other income' on Form 1040. The latter is the standard IRS document taxpayers use to file their yearly income tax returns.

What is a Gambling Loss?

A gambling loss is from placing a stake in wagering events with unknown outcomes or from games of chance.

 

Gambling Losses at a Glance

According to the IRS, wagering winnings are viewed as income. It means the IRS requires casual gamblers who don't gamble professionally to pay taxes on their winnings. People can then factor in wagering losses on their taxes by compiling their deductions on Schedule A of Form 1040. Also, the wagering losses should not exceed the reported amount on gambling income.

 

The IRS encourages casual gamblers to properly compile their winnings and losses to deduct gambling losses better. Other essential details like the type and period of gambling and ticket receipts are also highly recommended by the IRS when calculating your net gambling losses.

A concept taxpayers usually confuse is the idea of wagering losses to be deducted exceeding winnings indicated as income. If a gambler has $5,000 in winnings but $9,000 in losses, only $5,000 will be deducted. The extra $4,000 can't be carried forward to later years or considered a bad debt written off. However, with $3,500 as winnings and $1,500 as losses, the $3,500 is highlighted as income, and the player can claim the $1,500 as part of deductions on their tax returns.

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Niyati
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