Taxes on Gambling Winnings - Interview With an Expert

Summary

In this video, Russ Fox, an accountant specializing in gambling taxes, provides valuable insights into how gambling winnings are taxed. He explains when gamblers need to report winnings, how to handle losses, and the intricacies of W-2G forms, which are issued for winnings of $1,200 or more from electronic gaming machines. Russ also discusses the impact of state and local taxes, with a focus on differences in laws across U.S. states, as well as the tax obligations for international gamblers. He also offers advice on how to properly manage gambling tax filings and the importance of keeping accurate records.

Takeaways

• 😀 Gambling winnings are taxable as income, and all gamblers must report their winnings to the IRS on Schedule 1 of their tax return.
• 😀 Gambling losses can be deducted up to the amount of winnings, but only if the gambler itemizes their deductions on Schedule A.
• 😀 If a gambler wins $1,200 or more on an electronic gaming machine (such as slots or keno), they will receive a W-2G form to report the winnings to the IRS.
• 😀 Most table game winnings do not result in a W-2G unless the bet is extreme, such as prop bets with odds of 300 to 1 or more.
• 😀 Online casinos are treated similarly to in-person casinos when it comes to reporting winnings; winnings above a certain threshold require a W-2G form.
• 😀 For sports betting, a W-2G is issued for winnings of $600 or more at odds of 300 to 1 or higher, but this is rare.
• 😀 Even if a gambler's winnings exceed $1,200, they can claim only the actual winnings after subtracting the amount bet, as long as they document this clearly and explain it on their return.
• 😀 While the IRS generally does not pursue small-time gamblers, large winners who underreport their gambling earnings can face scrutiny during audits.
• 😀 Foreign citizens who win large jackpots in U.S. casinos may be subject to a 30% withholding tax unless their home country has a tax treaty with the U.S.
• 😀 Some states, like Pennsylvania and New Jersey, allow gamblers to offset their winnings with losses, but other states do not, making it difficult for gamblers to avoid paying taxes on net losses.

Q & A

How are gambling winnings treated for tax purposes?

Gambling winnings are considered taxable income unless Congress exempts it. Gamblers must report all their winnings as 'other income' on Schedule 1 of their tax return, and gambling losses can be deducted up to the amount of winnings on Schedule A if they itemize their deductions.

Can I deduct my gambling losses?

Yes, but only up to the amount of your gambling winnings, and you must itemize your deductions on Schedule A. Additionally, some states do not allow the deduction of gambling losses.

How should gamblers keep track of their winnings and losses?

Gamblers should keep a record of each winning and losing session, including amounts won and lost. These records should be submitted along with their tax return to the IRS.

What if I win $1,200 or more on a slot machine—what form will I receive?

If you win $1,200 or more on an electronic gaming machine, you will receive a W-2G form from the casino, which you must report as income on your tax return.

How are table game winnings treated for tax purposes?

Generally, table game winnings do not trigger a W-2G unless the winnings meet specific criteria, such as winning at odds of 300:1 or higher. For most regular table games, winnings under this threshold do not require a form.

What about online gambling? Are winnings from online casinos treated differently?

Winnings from online casinos are treated like winnings from a slot machine in a live casino. If you win $1,200 or more, you will receive a W-2G. Even if the game has a live dealer, it's still considered an electronic game for tax purposes.

How are sports betting winnings taxed?

Sports betting winnings are taxed in the same way as other gambling winnings, but W-2G forms are typically issued only when winnings exceed $600 and the odds are 300:1 or higher.

Can I deduct gambling losses if my winnings are less than my losses?

You can only deduct losses up to the amount of your winnings. Even if you have more losses than winnings, the IRS will not allow you to deduct the difference beyond your winnings.

What happens if the casino issues a W-2G for a higher amount than I actually won?

If you receive a W-2G for a higher amount than your actual winnings (e.g., you win $600 but the casino reports $1,200), you can still report the actual winnings on your tax return, but you should attach a statement explaining the discrepancy.

Do foreign gamblers have to pay taxes on their winnings in the U.S.?

Yes, foreign gamblers may have to pay taxes on their winnings in the U.S., depending on whether their country has a tax treaty with the U.S. Countries like the UK have exemptions, while others may withhold 30% of the winnings.