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Winning Money? How The IRS Taxes Gambling

As January 2021 fades into February, it’s almost time for that dreaded time of year, also known as tax season. Tax season can be happy for many people (especially those who get a refund year after year) but can be difficult for others who end up owing money to the government. If you’re a professional or recreational gambler, this can be even more stressful than normal, because how do you know what taxes you need to pay?

What Counts As Gambling Income?

Some people are under the impression that gambling winnings only need to be paid on money won in table games like blackjack or poker. But this couldn’t be further from the truth. In the United States, Americans owe taxes to the government on any sort of gambling they engaged in, whether it was won on a slot machine, sports betting, bingo, or via a lottery. Although this is quite annoying, remember that you can also claim your gambling losses on these same activities if you’ve had an especially bad year. All gambling wins and losses must be claimed in the year they occur and they cannot be carried over to later years.

If you tend to gamble at the same casino, or group of casinos, you will likely receive what is known as “comps.” Comps are any sort of complimentary item you receive because you gamble at the property. This can be meals, rooms, and even physical gifts. These comps are considered by the IRS to be part of your income and must be claimed accordingly. But if you are considered a professional gambler, you can also deduct your expenses as well. So, if you play a poker tournament in Vegas for the weekend, and require a hotel room and meals, you can deduct these as company expenses when it comes time for tax season.

The IRS also requires that married couples file their gambling taxes together (just like the rest of your taxes). Therefore, if you are married, and you and your significant other each play often, make sure you both keep track of your gambling winnings and losses. You can do this on the same spreadsheet, or you can do separate documents and combine them at tax season.

It’s important to note that gambling winnings are often taxed at both the state and the federal level, so make sure you check the specific rules on claiming gambling income for your state of residence.

Where Do You Start?

When you win a large amount of money via the lottery, or in a casino setting, they will likely provide the tax documents for you. These documents will only cover the large win, so you still need to regularly track and log the amounts of money you are gambling and winning or losing. A number of professional gamblers do this via spreadsheet, simply entering the money they started with for the day, and what they ended with. The difference is kept in a separate third column and then added up each year during tax season. According to the IRS, their spreadsheet must also include the date the wager was made, the name and location of the casino in which you played, as well as your specific wager. They also ask that if you were with anyone else at the time, they be named on the sheet too, in case of a future audit. 

Next, you’ll need to acquire a W-2G for Certain Gambling Winnings if you live in the United States. If you live somewhere else, there are likely similar forms but they will be called by a different name. This form (at least in the US) is fairly straightforward and easy to fill out. You will need to know information such as how much money you won, when, and in what state. It is highly likely that if you gamble often that you will have multiple different W-2G forms to fill out (or provided to you by casinos).

If you are a professional gambler, this is where things get more complicated, as you will have to fill out a schedule C form also called form 1040. This form basically classifies what you do as a small business. 

Is it Difficult to File?

Unfortunately, the US tax system does not make it easy for people to file their own taxes. This is by design. By confusing you with taxes as much as possible, it is much more likely you will make a mistake and miss out on a refund you may have earned. Filing when you have gambled a bit is especially difficult.

If you only have one gambling winning to report, it’s likely you will be just fine faring on your own. But if gambling is your profession, you are better off using some form of official filing. If you don’t make much money, this can be as simple as using an online program like TurboTax or H&R Block. But if you gamble quite frequently, and experience massive swings in capital, you will probably be better off hiring a professional accountant to look over your finances and file taxes for you.

No matter which route you decide to take, it’s critical that you keep every single receipt and piece of paper you are ever given by a casino, because if you are audited, you will need these to show how you arrived at the numbers you filed. If you deducted any losses or expenses, you will need receipts for these as well. Keeping track of all your physical receipts for a year can be difficult in this day and age, so consider investing in a digital receipt storing system to keep from having to lug around all that paper—especially if you are a professional gambler.

Overall, the taxes for both professional and amateur gamblers in the Unites States can be confusing, and downright impossible to file without help. And if you make a mistake while filing, it can take years to correct the issue, and you may be fined. Thus, before you jump into filing your taxes this year, make sure you research the specific gambling tax laws which apply in your state. Later, if you start filing, and find it too difficult, don’t be afraid to stop ask a professional for help.

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