When you file your federal income tax this year, be sure to account for any gambling winnings. That’s taxable income, and if you’ve won enough money, the casino has filled out a form and reported that income to the IRS.
That might sound like bad news, but it’s not all bad news. If you’ve kept a diary of your losses at the casino, you can use that to offset your winnings. You only pay taxes on your net winnings from the casino.
But you can ONLY deduct losses up to the amount you won. You cannot deduct more than that. Also, if you’re going to take this deduction, you do have to itemize your return.
I like to suggest to people that they keep a blog and sell advertising on it as a side hustle. If you do that, it’s theoretically possible to consider any money you spend at the casino a tax deduction. I’m not an accountant or a lawyer, so consult a professional before following this strategy.
How to Claim Gaming Wins and Losses on a Tax Return. If you had a successful night at the slots or poker tables, you're going to have to share some of the lucky proceeds with Uncle Sam. The Internal Revenue Service generally requires that you report your gambling winnings and losses separately when you file your taxes rather than combining the two amounts. If you have winnings from blackjack, baccarat, craps, roulette, or big-6 wheel, and the casino gave you a Form 1042-S (Foreign Person s US Source income subject to withholding) showing that tax was withheld, enter these winnings in column d of line 10, with a tax rate of zero%. You can claim a refund of the tax.
You can read the official IRS information about gambling income on the IRS website. I’ll provide further coverage and observations in this post.
How to Keep a Gambling Diary
If you gamble at all in a casino, you should keep a gambling diary. This just tracks your wins and losses. You should include the following information in your gambling log:
- The dates you were gambling
- The games you were playing
- Where you were gambling
- Who was with you
- How much you won or lost on the trip
You should also keep supporting documentation. This might be the form that the casino provides when you win a jackpot. It could also be the receipts from the ATM for the money you withdrew to gamble with.
You can also ask the casino to give you a record of your action based on what is reported when you used your slots card. And yes, you should always use your slots card while you play.
What Does the IRS Say About Gambling?
The information presented on the IRS website is aimed at casual or recreational gamblers. If you’re operating a casino or bookmaking operation, this information might not apply to you.
Tax Percentage On Gambling Winnings
The most important piece of information on the page is that yes, your winnings are completely taxable. You are required to report that income.
They provide examples of casual gambling activity that might count:
- Casino games
- Horse betting
- Lotteries
- Raffles
Cash isn’t all that counts as income either. If you win a car or a vacation, the fair market value of that prize is taxable.
As I pointed out earlier, you can deduct losses, but only up to the amount that you win. If you saw a net loss for the year, you can only deduct the amount you won.
How Much Tax Do I Owe on My Gambling Winnings?
As of this writing, the tax rate for gambling winnings below $5000 are a flat 25% of the amount you won. But that’s only if you’re a recreational gambler.
If you’re a professional gambler, you pay tax on it at the same rate as your taxable income. Professional gamblers must file taxes as if they’re self-employed.
What About State Taxes?
There are 50 individual states in the United States of America. Each of them has its own law regarding taxes. Texas, for example, has no income tax at all. It does, however, have a higher sales tax than most other states.
So, yes, some states require you to pay taxes on your winnings, while others might be more forgiving. I recommend that you check with an accountant or a tax attorney regarding your specific situation in your state.
Gambling Winnings New Tax Law
What About Nonresidents?
If you’re a nonresident, you report your income on Form 1040NR. The NR stands for nonresident. The tax rate for gambling winnings for a nonresident is slightly higher, 30% instead of the usual 25%. Nonresident aliens don’t get to deduct their gambling losses either.
Line To Claim Gambling Winnings On Tax Return
There’s an exception for Canadian citizens gambling in the United States. They’re allowed to deduct their gambling losses just like American citizens can. This is part of a tax treaty between the United States and Canada.
We encourage you to double-check all this information with your tax professional in case of any changes. That’s just sound fiscal policy.
Other Countries Do It Differently
If you live in the United Kingdom, you do NOT have to pay income tax on your gambling winnings. Even if you’re playing in another country, if you’re an English citizen, you probably don’t have to pay taxes on your winnings there. That’s because the UK has treaties with other countries related to taxes that cover you.
That being said, if you’re a huge winner, the UK does charge you if you win more than a certain amount. They assume that anyone winning more than that amount isn’t a typical recreational gambler. After all, if you make enough money at an activity that it pays all your bills, it’s hard to not consider it income.
England is more typical of other countries’ attitudes toward gambling winnings and taxes than the United States. Most countries don’t tax money you’ve won gambling.
France, Mexico, and Spain are exceptions. Each of them require you to pay taxes on your winnings, although they don’t seem to charge as much as the United States.
Conclusion
Also, don’t use a blog post like this one to get the real details about paying taxes on your gambling winnings. Visit the official IRS site if you’re from the United States, and follow the instructions there.
Or better, consult a tax professional. Finally, if I can offer one more piece of advice: Keep detailed records.