What You Need to Know About Gambling and Taxes
Everyone wants to be a winner when they gamble or wager a bet. But, to be a winner, you need to pay your taxes on any winnings you receive. From Texas hold ’em, poker, and blackjack to sports betting, horse races, and slot machines, here’s everything you need to know about gambling and taxes.
How is Gambling Income Taxed?
If you win income from gambling, it’s almost always considered taxable income by the IRS. Gambling income includes cash and the fair market value of prizes such as trips and vehicles. If you receive any gambling winnings, the payer is required to issue you a Form W-2G, where you’ll see how much you won and what was withheld in taxes. Even if you do not receive a Form W-2G, you still need to report your gambling earnings on your tax return.
What if you Lose Money?
Gambling losses must be reported on your tax return. These losses are reported separately from your winnings and can be deducted if you itemize your deductions on Form 1040. Also, you can only deduct your losses up to the total amount of gambling winnings.
Are there Tax Requirements for Nonresidents?
Despite winning or losing big in the United States, nonresidents are still required by the IRS to report income effectively connected to a U.S. business on Form NR-EZ. Nonresidents need to check with their native country to determine if they can recover any taxes placed on their gambling winnings. For instance, Canadians who gamble in the United States are given special consideration by the IRS, thanks to the Canada-US tax treaty. They’re able to deduct gambling losses against gambling winnings, where the tax is calculated on net winnings. Any difference between the calculated tax and the withheld tax is refundable back to them.
What if Professional Gambling is Your Job?
Since you’re a professional gambler, your gambling income is generally considered earned income and taxed at the effective income tax rate. You are required to report your income expenses on tax form Schedule C. If you have any gambling losses, they can be written on the tax form Schedule C as job expenses.
File Your Taxes with Tobin & Collins
Tobin & Collins is ready to assist you with tax return preparation and compliance to make Tax Day stress-free. Get the tax assistance you need by contacting our expert CPA and Financial Advisors at (201) 487-7744 or by filling out an online contact form today!