Reporting your gambling winnings and losses can sound complex, but it is actually not too hard a process if you are just a casual gambler and not a casino! You can report your legally earned money, including winnings from lotteries, raffles, horse races, and casinos, among others, on your form 1040. These winnings get reported with the rest of your taxable income for the previous tax year. You must be sure to show your wins and losses by keeping good books though. This is very important in order to establish credibility to the IRS!
The Process for Reporting
In order to report your winnings, you need to receive a Form W-2G (Certain Gambling Winnings) from the casino or whoever is paying you. This is a form that explains how much was paid, the type or amount of bet, whether they were different bet amounts, the amount of winnings etc. That is very important for tax preparation and necessary in order to report your winnings and prepare your federal income tax. According to the IRS, you should record:
- The date and type of your specific wager or wagering activity
- The name and address or location of the gambling establishment
- The names of other persons present with you at the gambling establishment
- The amount you won or lost
These are all needed in order to deduct gambling losses up to the amount of your gambling income. In addition, bank withdrawals, stubs from the places that show what you paid or bet, or other ways to show you paid money help to establish your case.
Having additional documents to back up your case will help to show you paid what you said you did. This is the reason to keep your records very well organized. Bear in mind that there have been court cases where the IRS tried to dispute taxpayers. So, this is a very important part of the reporting process. It is better to be over-prepared than under-prepared! In order to deduct your winnings, you need to list them as miscellaneous deductions when you itemize your deductions. Also, be sure to keep in mind that your losses must be less than your winnings.
With the W-2G and your Form 1040, you are ready to report your gambling winnings and deduct your losses. It is also important to be sure that the taxes were withheld before being paid, otherwise, you will have to pay the federal taxes for your winnings. This is also important to keep in mind as you gamble.
Recordkeeping and Making Sure Your Losses are Established
The IRS has tried to dispute claims in the past. It is very important that you keep very good records as a result. Also, if the IRS finds out you have been not reporting winnings, you can get into trouble for not paying the taxes. You must also keep in mind to have all your winnings and losses reported in full and not to fail to report some winnings in order to get back extra money from deductions. There have been cases where people have failed to report winnings in order to get extra money from a tax return, and this is one of the reasons there is additional scrutiny on W-2G and 1040 tax return files.
The IRS has also tried to claim that the itemized deductions were less than the unclaimed winnings, so in order to maintain complete transparency you should also keep records of winnings by W-2G papers anytime you go gambling, and file them all. That way, if you have losses you are trying to deduct, the government can’t say you don’t have the proper paperwork or claim that you did not report winnings. Because more and more people are gambling every year, and because the IRS has to process all the paperwork, they try to go after as many people as they can. Since more states continue to legalize gambling, it is becoming a harder job for the IRS and the government. Also, by contesting cases, they also don’t have to pay as much in tax returns, as they will try and claim you made more than enough in comparison to your losses and will try to make you pay more in taxes. So always be sure to keep very clear and good records!
Another thing to note is that not every bet is considered an individual transaction. Bets on different combinations only are considered different. This creates an issue with taxes if you aren’t too careful since some bets will be considered one betting transaction and others will not. This is another reason to make sure your records are clear, so when you see someone to help with your taxes you will be able to provide a full accounting. The tax preparer will be able to help with what is considered one transaction and what is not.
These are the things to consider when trying to report wins and deduct losses. Be sure to keep good records in order to avoid any possible excess taxes, and to prevent any question about your wins and losses. As long as you have the forms and clear records, you should be able to have an easy time reporting your wins and itemizing your deductions.