Gambling is something that many Americans indulge in, and the number of people engaging in various forms of gambling has steadily increased over the years.
To that end, it is important to understand how taxes apply to casual gamblers.
Where do you report your winnings?
According to the IRS, the paying institution will send the winners a Form W-2G in order to report their winnings. This happens if you receive a high jackpot win, i.e. high horse race bets or the lottery.
If you do not receive this form, you must still report any winnings on Form 1040 in your tax return for the year. All of this falls under “other income” in your taxes.
What can you deduct?
You cannot deduct the wager you made from your total earnings under federal law. In other words, no matter how much money you bet on a $1,000 jackpot, you still have to report the $1,000 as your winnings.
But you can deduct losses within a certain limit. For example, if you win $1,000 over the year but lose $4,000, you can deduct a maximum of $1,000 because you cannot claim more in losses than winnings. You must also itemize all of this information on your tax return.
What happens if your prize was not cash?
If you won something like an item, the IRS still considers this a taxable win. It is up to you to do research on the value of the item in question and report that worth on your tax form.