How to Avoid Online, Internet and Sports Gambling Tax

So you won some money at gambling, and you want to know if you have to pay the Government, income taxes on your winnings. Well, the short answer to that is yes, but there are some exceptions to the rule.

If you had gambling winnings you’re required to report them as other income on IRS Form 1040. The tax rate for online, internet and sports gambling winnings is the same as your regular income.

If you had gambling losses you are allowed to deduct what you lost, up to the amount that you’ve won. You are not allowed to deduct gambling losses that exceed your winnings, and you are not allowed to carry-over your losses from one year to another.

A Form W-2G is used to report gambling winnings from, internet, online, casino, sports betting, horse racing, lotteries, bingo and other legal gambling activities.

You’ll receive a Form W-2G if:

Income taxes were withheld from your winnings
You won at least $600 or more and your winnings were at least 300 times the amount of your bet
Your winnings were from a slot machine or bingo in the amount of $1200 or more
Your winnings were from keno in the amount of $1500 or more.

How to deduct your losses from your winnings

In order to avoid paying gambling tax you’ll need to itemize your losses on Schedule A tax form (itemized deductions). As with most itemized deductions you are required to keep a record of gambling winnings and losses. You should keep the date, time, type, place, tickets, receipts and any other records you have as proof.

By keeping accurate records of your online, internet and casino gambling you can pay less tax when you win. When you pay less gambling tax, you win again!

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Gambling and the IRS – Lady Luck Was on Your Side – Now You Owe Uncle Sam

Winning Big: Gambling is addictive. If you took a trip and won some cash, you might think you’re on easy street. But you’ll be in from a rude awakening if your earnings were not reported to the IRS. Yes, believe it or not, Uncle Sam wants a cut of those gambling winnings.

They want it all: So it’s established. The IRS wants to know every little detail about your income. That means if you win money from casino, report those earnings. And even cash prizes won from raffles, lotteries, and Sunday Night’s bingo round need to be reported. They are all considered income by the IRS.

Didn’t Report It: So what is the fate you suffer if Uncle Sam isn’t privy to your winnings? You’ll be in debt to the IRS. You’ll have to pay what you owe, plus interest and penalties if the debt was ignored for long enough. That means all that money you earned can be gone in a flash. Here are some methods the IRS may use to collect from you:

Asset Seizure: Already spent your winnings on luxury items? Now they’re in danger! If you ignore the IRS, the might come and seize the assets to satisfy your debt!

Bank Levy: The IRS can actually freeze your bank account! All the money will be gone in 21 days if you don’t contact them and work out a solution for payment.

Wage Garnishment: Payday’s here. But it’s an unhappy day for you if you owe the IRS. The IRS can legally seize a portion of your paycheck to pay on your debt. They’ll leave you with just enough money to pay for your basic needs. (Like buying food and keeping a roof over your head.)

Reporting Losses: The tables have turned. You can use the IRS’s rules about reporting gambling wins and losses to your advantage. You can deduct gambling losses. But the losses may only be deducted if you itemize deductions and you also have gambling winnings. To claim the gambling losses use Form 1040A. But keep in mind, the losses you deduct may not be more than the gambling income you report.

Don’t Forget: You have to prove it! You have to provide receipts, tickets, statements and other records to show both your winnings and your losses.

Playing it safe: If you are already in debt because of not reporting your earnings, there’s still hope. Don’t think you can get away with saying you didn’t know the tax rule. Because ignorance of the law is never considered an excuse. Instead, actively find a way to pay the debt off. If the IRS isn’t cooperating with you, consider hiring a tax professional that can help you pay the lowest amount possible.

New Tax Rules Concerning Gambling Activities

The Internal Revenue Service (IRS) has historically required that gambling winnings and gambling losses be separately accounted for. The reason for this has to do with the way gambling losses are deducted for tax purposes. Gambling losses are treated as an itemized deduction and reported on Schedule A of the individual income tax return (Form 1040). This creates a problem in the cases in which taxpayers cannot itemize (as is the case when a standard deduction is greater) or in which the taxpayer’s income exceeds a certain threshold (in which case the taxpayer loses part of their itemized deduction via a phaseout). In such cases the taxpayer does not get the full benefit of the gambling losses to offset against the gambling winnings. What the IRS is really after is the reporting and taxation of gross gambling winnings.

New Tax Rule:
According to a recent tax court case (Shollengerger, TC Memo 2009-36) taxpayers are allowed to net gambling winnings during a given day with gambling losses. This is a significant setback to the IRS. As an example, imagine if you were to win $2,000 in the morning at a casino and lose $900 later that afternoon. Prior to this court case, the IRS would require that you report the $2,000 in gambling winnings and then separately itemize the $900 in gambling losses on your tax return. The court instead ruled that the taxpayer in this case was permitted to net the gambling winnings for the day and report $1,100 as net gambling winnings instead of the $2,000 gross amount, the IRS mandated. The court went on to state that this “netting rule” only applied on a daily basis. It stated that a taxpayer could not net gambling winnings and losses for the entire year.

Irrespective of this change in reporting and taxation of gambling activities, there are specific accounting requirements for gambling activities. The IRS requires taxpayers to keep a diary or ledger of all gambling activities. This tax accounting requires the taxpayer to record the following information concerning various gambling activities:
1. Type of gambling activity
2. Location of gambling activity
3. Amounts won and amounts lost for every activity
4. Number of games played
5. Cost of Bingo cards purchased
6. Winnings for each Bingo card
7. Copies of Keno tickets validated by the gambling establishment
8. Copies of casino credit reports
9. Copies of casino check cashing records
10. Records of the number of races bet on (horse, harness, dog)
11. Amount of racing wagers
12. Amount of racing winnings and losses
13. Record of slot machine number
14. Record of slot machine winnings by date and time per machine
15. Table number played (blackjack, craps & roulette)

16. Table credit card data including where credit was issued

All of the above items can be supplemented by receipts, tickets etc.

Taxes and Gambling

Get the Form

Whenever you win a “qualifying amount” at a casino, they are legally required to report it to the IRS. Therefore, they will collect your social security number and send you an IRS Form W-2G. As such you want to make sure to report these winnings on your tax returns because the IRS obviously already knows about them. Do not make the mistake of trying to avoid the taxes by giving the casino incorrect information as this is very illegal and could get you into a lot of trouble.

Qualifying Amounts

According to the IRS, a casino will need to report your winnings to the IRS if you win: $600 or more at a casino or horse track, $1,200 or more at bingo game, or $1,500 or more in a game of keno. Depending on your winnings the casino may even withhold taxes from your payout.

Smaller Fortunes

Although smaller winnings will not be automatically reported to the IRS, it is still your legal duty to report them. While the IRS may not catch you in the act if you do not report these smaller winnings once or twice, they may get suspicious if you report gambling winnings often, but only those that are verified by a W-2G Form.

On the 1040

You must report your gambling winnings, prizes, or non-cash prizes on your Form 1040 come tax season. They will need to be put on line 21, with “other income”. 1040EZ forms cannot be used to report gambling winnings.

Gambling Losses

In addition to reporting your gambling winnings, you will also want to deduct your gambling losses. However, you cannot report gambling losses that exceed your total gambling winnings. When you deduct the losses, do so on Schedule A on IRS Form 1040 as an itemized deduction.

Keep Track

It is both helpful and smart to keep a thorough log on your gambling activity, including winnings and losses, as well as where the gambling took place. There are several reasons why doing so is a good idea, including but not limited to the possibility of an IRS audit. It will also make things easier when you need to prepare your return next April.

Taxes Withheld

Taxes withheld from your winnings should also be reported in Box 2 of the Form W-2G you receive in the mail. Be sure to report these amounts on your Form 1040 in the total payments section.

Attach All Forms

To satisfy the IRS, be sure to attach all forms regarding your gambling activity to your tax return. This includes your W-2Gs or any other gambling-related tax documents.

Comps

You may think that people who get free hotel rooms, and tickets to shows from places they gamble at are pretty lucky. However, these “comps” do not come without a price. They are all considered gambling winnings by the IRS, and are subject to the same taxes.

The IRS and Gambling Winnings – Don’t Let Your Big Prize Turn Into an Even Bigger Tax Debt

Jackpot! If you’ve got a gambling spirit, chances are you’ve probably invested a good amount of time into casinos. But if you win big in Vegas, don’t let the thrill of victory cloud your head. If you’ve won money from gambling and you didn’t report your winnings to the IRS, you could be in for a disturbing wake up call.

Beating the House: Whenever you win money through gambling, you must report it to the IRS. The IRS wants to know everything about your finances. Not only do you have to report money won through a casino, but also raffles, lottery, and even bingo. The reason these winnings have to be reported is because the IRS considers them a form of income.

Snake Eyes! What happens if you owe the IRS money because you didn’t report the winnings, or if you can’t afford to pay them what you owe? Well, as an IRS Hitman I can tell you it’s not going to be pretty. Soon, you may even be regretting your winnings. It will be you against the IRS and unless you have a good arsenal, they’ll take you for everything you’ve got!

Stealing the Pot…The IRS has several ways of collecting on your tax debt and the most effective by far is the wage garnishment. This means the IRS can start taking money from your paycheck. And guess what? Neither you, nor your employer can do anything about it. The IRS can actually garnish up to 75% of your gross pay and that can put in a large financial hardship.

Play it Safe: If you’re already in this unfortunate situation, there are still ways of getting help. You can speak with a reliable tax professional who will give you the facts on how to resolve your tax debt once for all. The House may be a scary thing when it comes to the gambling industry, but the IRS’ House is even bigger. So remember, the next time you’re in Vegas, don’t go all in.