How to Report Gambling Winnings and Losses on Your Taxes
Learn about your tax responsibilities for gambling income. This guide covers the necessary steps for reporting winnings and handling losses for tax purposes.
The Internal Revenue Service (IRS) considers money won from gambling to be taxable income that must be reported on your federal tax return. Gambling income is not limited to cash; it includes winnings from lotteries, raffles, horse races, and game shows. It also includes the fair market value of non-cash prizes, such as cars, vacations, or other property.
Identifying Reportable Winnings and Required Forms
Payers of gambling winnings must provide you with a Form W-2G, Certain Gambling Winnings, when your winnings surpass specific IRS thresholds. You should receive this form if you win:
- $1,200 or more from a bingo game or slot machine.
- $1,500 or more from keno.
- More than $5,000 from a poker tournament.
- $600 or more from other wagers, but only if the payout is at least 300 times the amount of your wager.
The Form W-2G shows the total amount of your gross winnings in Box 1 and any taxes withheld in Box 4. Payers may be required to withhold a flat 24% for federal income tax from large winnings, generally those over $5,000. This withholding is a prepayment of the tax you will owe on that income.
It is a common misconception that winnings are not taxable if you do not receive a Form W-2G. The law requires you to report all gambling winnings, regardless of the amount and whether a form was issued. The thresholds for receiving a W-2G are simply reporting requirements for the payer; they do not define what is considered taxable income for you.
Documenting Winnings and Losses
The IRS requires taxpayers who deduct gambling losses to maintain a detailed diary or log of their gambling activity. This log should be updated regularly and contain specific details for each gambling session. For each date you gamble, you should record the type of wagering activity, the name and address of the gambling establishment, and the amounts you won and lost. It is important to keep your winnings and losses separate in your records rather than only tracking the net outcome of a visit.
In addition to a detailed log, you should retain supporting documentation that can verify the information you recorded. This includes items such as wagering tickets, payment slips, and Form W-2G. Bank statements, credit card statements, and ATM withdrawal slips from the gambling venue can also serve as proof of your activity.
Calculating and Reporting on Your Federal Tax Return
When preparing your federal tax return, you must report the full amount of your annual gambling winnings as income on Schedule 1 of Form 1040. You cannot reduce your reported winnings by your losses and report only the net amount; the two figures must be handled separately. The gross winnings from all sources, including cash and the fair market value of prizes, is combined into one total.
If you choose to deduct your gambling losses, you can only do so if you itemize your deductions. Gambling losses are reported on Schedule A (Form 1040) under the “Other Itemized Deductions” category. This means you cannot claim any gambling losses if you take the standard deduction. The decision to itemize often depends on whether your total itemized deductions exceed the standard deduction amount for your filing status.
A rule is that you can only deduct gambling losses up to the amount of your reported gambling winnings for the year. For example, if you report $7,000 in winnings and have $10,000 in documented losses, you can only deduct $7,000 of those losses. The remaining $3,000 in losses cannot be carried forward to future years or used to offset other types of income.
If you take the standard deduction, you are still legally required to report and pay tax on all your gambling winnings. However, you will receive no tax benefit from your gambling losses, as there is no mechanism to deduct them outside of Schedule A. This can result in a higher tax liability compared to an individual with the same winnings who is able to itemize their deductions.
State Tax Reporting Obligations
Beyond federal requirements, you must also consider state tax obligations, as most states with an income tax also tax gambling winnings. The rules for how states handle this income can be quite different from the federal system. States may have different reporting thresholds, forms, and methods for deducting losses.
A consideration is the tax liability that arises from winning money in a state where you are not a resident. If you win a substantial amount while traveling, you may be required to file a non-resident tax return in that state to report the winnings. This is in addition to reporting the income on your resident state tax return. Your home state may offer a tax credit for taxes paid to another state to prevent double taxation.
To ensure compliance, consult the department of revenue website for your state of residence and for any other state in which you had gambling winnings. These resources will provide the specific rules, tax rates, and forms for proper reporting. Failing to file a required non-resident return can lead to penalties and interest charges from that state.