Annually, millions of Americans purchase lottery tickets, bet on the race track or try their hand at the black jack table or slots at a casino. For those who are lucky enough to come out ahead, Uncle Sam demands a cut. Yes, gambling wins are taxable and the IRS expects that those who play and win, will pay.
Individuals with gambling wins may be issued an IRS W-2G form. A taxpayer is expected to list any and all income earned from gambling wins on this form. There are several factors that determine whether or not an individual will be issued a W-2G including the type of gambling wins, the amount and whether or not the “payer withholds federal income tax from your winnings.”
Gambling or sweepstakes wins that include non-cash prizes like a car or a home must also be accounted for by listing the “fair market value” of such prizes as income. In cases where an individual gambles and wins, but doesn’t receive a W-G2, the IRS still expects that he or she will claim any and all wins as income under the “other income” portion of a tax return.
Of course many people who gamble and eventually win, have also likely lost a significant amount. Many people may not know that the IRS actually allows itemized tax deductions for gambling-related losses up to a certain amount. The amount of losses an individual is able to deduct depends on the amount he or she has won. Additionally, the IRS requires that winnings and losses are accounted for separately. For example, an individual can’t just deduct their amount of losses from their wins.
Individuals who gamble would be wise to keep accurate records of their winnings and losses as well as any receipts or other related documentation. In cases where an individual has questions or concerns about gambling-related income, an attorney who handles tax matters can assist.
Source: IRS.gov, “Six Tips on Gambling Income and Losses,” Aug. 20, 2015