Tax Tips For Gambling Losses And Winnings
If you’ve cashed in on the sports gambling trends or had a lucky trip to the casino, you may be wondering how to handle your winnings and if you should file taxes for them. In fact, even if you missed your bets and lost money, there’s still a remedy for your losses when taxes are concerned.
Look no further if you’re looking for tax tips regarding your gambling activity. This blog post has all the information you need to understand what to do next.
Are gambling winnings taxed?
Yes, if you’ve won money from gambling, you are expected to pay taxes on what you’ve earned. Whether you cashed in through a sports gambling app or made a trip to a casino, you are required to fill out a Form W-2G for the money you earned gambling.
All gambling winnings, including those not reported on a Form W-2G, must be reported on Form 1040 or Form 1040-SR. When you win at gambling, you may be required to pay an estimated tax on that extra income.
The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. There are two ways to pay as you go: withholding or estimated. In the case of gambling, you’ll be following the latter.
Income tax is withheld from certain gambling winnings at a flat 24% rate. Earning more than $5,000 from any sweepstakes, wagering pools, lotteries, and all wages if the proceeds exceed 300 times the amount of the bet are subject to income tax withholding. Whether your winnings are paid in cash, in property, or as an annuity does not matter. Winnings not paid in cash are taken into account at their fair market value.
Can I deduct gambling losses?
Though your luck may have run out on your bets, there’s still good news regarding your taxes. You can deduct your losses, but only if you itemize your deductions on Schedule A (Form 1040). When filling out the form, claim your gambling losses up to the amount of winnings as "Other Itemized Deductions." The losses you deduct can't be more than the gambling income you reported on your return.
To deduct your losses, you must keep an accurate record of your winnings and losses and be able to provide receipts, tickets, statements, or other documents that show the amount of both your winnings and losses. It’s a good idea to have that sorted out before you begin filing your taxes so you can make the process simpler and avoid long nights, extra cups of coffee, and hours of meticulously sorting through your records.
It’s essential to keep in mind that if you use the standard deduction on your taxes, you cannot claim your gambling losses in your return. So think twice before you decide which deduction method to use.
Do state and local taxes apply to gambling winnings?
Hold your horses before you rush to file your taxes. When you’re looking at your Form W-2G, pay attention to a couple of boxes. Those are for your state and local taxes, and depending on where you reside, you may also have to pay them.
Some states require you to pay local taxes, and if you place a bet in a different state that still has an income tax, they may also want to dip into your winnings. Don’t worry; you won’t be taxed twice. Instead, the state you live in will receive your taxes and issue a credit for the other state.
How can Taxfyle help?
Taxes are complicated. They require accurate record-keeping. They can take up much of your free time. And with tax codes changing each year and new forms being created, it’s tough to keep up with the changes. Don’t worry; we can help.
With Taxfyle, we take the stress of filing taxes out of your hand. We connect you with a licensed accountant with the experience needed to make filing taxes a breeze. Once you start, you’ll be connected with a Pro that can help you.
When it comes to filing taxes, why worry about whether or not you’re doing the job properly with a DIY service? This year, make the process easier with a Pro’s help.