Don't Roll the Dice on Taxes and Gambling Income
Roll the dice? Bet on ponies? Love the slots? Before you start making plans to spend your newfound fortune, remember that the IRS is due its share. You’re required to pay taxes on cash winnings from:
- Lottery payouts.
- Poker tournaments.
- Horse races.
- Slot machines.
Noncash winnings — like a vacation or a new car — are also considered a source of income, and you are required to report the fair market value of prizes too.
Winnings from casual gambling — which means you aren’t in the trade or business of gambling — are fully taxable and have to be reported on your federal tax return. Depending on where you live, you might have to pay state taxes as well. Each state has its own rules on taxing gambling winnings. Gambling losses can be deducted, but only up to the extent of your winnings.
You should receive a Form W-2G, Certain Gambling Winnings, from the payer. In fact, the payer is required to issue the form if you receive:
- $1,200 or more in gambling winnings from bingo or slot machines.
- $1,500 or more in proceeds from keno.
- $5,000 or more in winnings from a poker tournament.
- $600 or more in other gambling winnings in other situations, where the payout is at least 300 times the amount of the wager.
Generally, if your winnings meet or exceed the above thresholds, the casino or establishment will withhold 24 percent of your winnings in taxes before paying you your share. Form W-2G will summarize each payment or transaction. There may be state taxes too.
You must report all gambling winnings as "other income" on your form 1040, even those not reported on the W-2G form. Gambling losses can be deducted only if you itemize deductions and keep a record of your winnings and losses. The amount of losses you deduct can’t be more than the amount of gambling income you reported on your return. (Starting with tax year 2018, it may not make sense for you to itemize, even though you've itemized in past years, because the standard deduction is much larger.)
However, for tax purposes, all the gambling activity doesn't have to take place in one session. If you win $5,000 in May and lose $5,000 in November, the later loss can be deducted against the earlier win.
You should remember to keep an accurate diary of your winnings and losses — some way of recording via receipts, tickets or statements to show the amounts of each.
Finally, know that this guidance is for recreational gamblers, also known by the IRS as "casual gamblers," who make occasional visits to casinos. If you're one of those rare individuals who gambles as a full-time job, the situation is a little different. Remember that rules and regulations are subject to change and you should always check the IRS website for the most up-to-date information.