Keep Tabs on Your Wins & Losses!

February 2024

Recent polls tell us that US adults actively participate in their fair share of betting.

• 85% of respondents admitted to gambling at least once in their lifetime; 80% of whom gambled last year;
• Online gambling in the United States is primarily poker, casino games, and sports betting which attracts about 10% of the total gambling population;
• Online gamblers are on the rise to the tune of an annual increase of 15%;
• 32% of respondents said sports betting are the most popular online wagers.
• The lottery followed close behind, with 31% of respondents.

Especially if you occasionally or regularly engage in games of chance, be sure to read this issue.

Your Gambling and IRS Compliance

No surprise here: All income must be reported on your tax return whether a 1099 or other reporting document has been received. That includes gambling winnings…so if you wager and win, be prepared to demonstrate evidence of your good fortune.

Likewise, you can deduct gambling losses up to the amount of winnings, but the same guiding principle applies…be diligent in keeping accurate records of your financial damages.

Discussion Item with Your Tax Preparer: If you file your taxes and claim the Standard Deduction, it may not make sense to itemize losses to reduce total winnings. Unless the losses exceed your Standard Deduction, it may be more beneficial to retain the Standard Deduction.

How Gambling Winnings Are Reported and Taxed…and Not!

Like much in the way of interpreting the U.S. tax code, reporting gambling winnings is not a straightforward one-size-fits-all exercise. There are “the rules” and the “exceptions to the rules.” So, we’ll start with the former and refine with the latter.

As you’ll see, the requirements for reporting and withholding depend on:

• The type of gambling,
• The amount of the gambling winnings, and
• The ratio of the winnings to the amount of the wager.

The Rules:

If you win a substantial amount of money from any legally operated game of chance, the payer of your winnings will deduct 24% of the total for taxes and remit that amount to the IRS together with IRS Form W-2G as the documentation. You’ll be provided with a copy of IRS Form W-2G for your records. Keep in mind the amount withheld and sent to the IRS is an estimated tax…you may get a refund, or you may have an additional tax bite.

Note: What’s a substantial amount of money? It depends on the game. Read on.

The Exceptions

The IRS distinguishes between games requiring a level of skill and those considered games of chance. Games of skill are typically table games such as blackjack, craps and roulette. Casinos aren’t required to withhold taxes as described above as the casino has no record of how much money you started with. Your responsibility is to report the winnings when you file your return.

The payer is required to report gambling winnings on Form W-2G when:

• The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine;

• The winnings (reduced by the wager) are $1,500 or more from a keno game;

• The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament;

• The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are:

• • $600 or more, and
  • At least 300 times the amount of the wager; or
  • The winnings are subject to federal income tax withholding.

• Lottery Winnings – Federal: The Lottery Department shall report every lottery prize of $600 or more on Form W-2G.

• Lottery Winnings – State: The Lottery Department shall file Virginia state income tax withholding returns in accordance with § 1-472 of the Code of Virginia. The Lottery Department shall report state withholding amounts on proceeds more than $5,000. The Lottery Department shall not be required to report any prize of less than $600.

Takeaways

The IRS underscores the importance of recordkeeping. “You must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses." Refer to Publication 529, Miscellaneous Deductions for more information.

The above presentation is meant as an overview only. 
Give us a call and we’ll quickly help you with questions.