Gambling is a common pastime – increasingly so during the pandemic. If you’re getting ready to file your taxes for the year, you may be wondering how your winnings (or losses) at the slot machine will affect your bottom line.
In this post, we break down the basic tax rules for the casual gambler – as some additional rules apply if gambling is your profession.
First and foremost, you’re required by law to report all your winnings – no matter how big or small your jackpot. Now, if you bet $200 on horse racing and then won $1,000, do you claim $1,000 or $800 as your winnings?
What can I deduct?
Under federal law, you can’t deduct your wager from your total winnings. If your jackpot was $1,000, that’s the amount you claim – regardless of how much you bet to hit that jackpot.
You can, however, deduct your losses – within certain limits. Let’s say you won $1,500 over the course of the year, but you lost $4,000. The law prohibits you from claiming more in losses than in winnings – meaning that the maximum loss you could claim would be $1,500. Note that in order to take advantage of this option, you must itemize your deductions on your tax return.
What if I didn’t win cash?
Maybe you entered a raffle and won a new blender. In the eyes of the IRS, this is still considered income. If the blender was new, then you’ll need to look up the value of that new blender when you won it and claim that amount.
Where do I report my winnings?
All income from winnings – regardless of whether you won cash or other prizes – falls under “other income” on your tax return. For certain categories of winnings that exceed a certain amount – e.g., high winnings at horse racing, bingo or slots – the institution that pays you will need to send you a Form W-2G. However, even if you don’t receive such a form in the mail, you’ll still be required to claim your prize money on Form 1040 of your tax return.
The answers to many common tax filing questions can be found online. For support with more complex tax controversy or collection matters, seeking the help of an experienced tax attorney can prove invaluable.