I am no gambler but I, like a lot of other people, do enjoy a game of poker every now and then. I’m no professional at it, I must admit, but I am however the better player in our weekly poker game group. A bachelor party and a little urging from a few friends landed me in a poker table at a modest casino where I live and what do you know, I won! Just enough money to buy my friends a few rounds of drinks. The next day, I got to thinking, should I declare this winning to my bookkeeper? I went online to find out and every google result landed me with something like this site. After a couple of minutes of searching i wasnt surprised that the the short answer is, yes, winnings incurred through gambling are taxable. I was shocked and relieved. I dove deeper to investigate.
Report All Winnings
By law, all winnings through gambling are taxable and winners are required to report them as “other income.” Normally, you receive one or more Form W-2G where the amount of your winnings is reported as well as the tax that was withheld. Gambling winnings include:
- Casino Winnings
- Slot winnings
- Poker tournaments
Gambling winnings are subject to a 25% tax. However, winnings over $5,000 are subject to withholding tax. For non-cash prizes, the winner is responsible for the taxes on the fair market value of the prize received.
Deductibles are Permitted in Certain Cases
If you are honest with your winning, the IRS may allow you to deduct some gambling losses. They can deduct losses up to the amount of their winnings and only if their deduction is itemized properly. It helps if you declare all your winnings and losses separately as opposed to reporting a net amount. Losses through gambling are deducted on Schedule A as a miscellaneous deduction which is not subject to a 2% limit. If you are a regular guest at a casino, it helps to keep a thorough record of all your winnings and losses, documents such as receipts, tickets, payment slips, Form W-2G, and Form 5754. More of this could be found in the post about tax reduction tips.
These are very important documents that can serve as proof if you want to deduct your losses. The IRS required that the following information be kept:
- Date of both winnings and losses
- Gambling activity type
- Name and location of the establishment
- People you were with during the activity
- The amount of winnings and losses
Illegal Gambling Winnings are also Taxable
A huge amount of money is spent on illegal gambling activities including sports betting. The winnings you receive from these illegal gambling activities are still subject to taxation and therefore should be declared. So the bottom line is, yes, my meager winning, which I completely drained during that weekend excursion, is still subject to taxation. Nonetheless, I had a great time. For the first time, I sat in a real poker table facing unfamiliar faces and won. Both I and my friends are quite happy and I consider this a lesson for when I end up sitting in another poker table in the future. I just hope it wasn’t beginner’s luck that landed me that money.