Remember to Report Gambling Income and Expenses

Jan 19, 2015

MoneyLife100 Do you have dreams of hitting big with the lottery or raking in a jumbo jackpot at a local bingo game? If so, be sure to wake up to the reality that gambling winnings are fully taxable and must be reported as income on your tax return.

The Pennsylvania Institute of Certified Public Accountants reminds you that gambling income includes, but is not limited to, winnings from lotteries, raffles, horse and dog races, and casinos, as well as the fair market value of prizes such as cars, houses, trips, and other noncash prizes.

Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment. Any legitimate gambling institution must report winnings over certain amounts and withhold income tax if winnings are greater than certain amounts.

For example, bingo or slot machine winnings of more than $1,200 must be reported. Keno winnings of more than $1,500 must be reported. For horse racing, dog racing, or other wagers, winnings of more than $5,000 must be reported.

Income tax is withheld at the rate of 25 percent on any gambling winnings of $5,000 or more from any sweepstakes, wagering pool, lottery, or other wager where the proceeds are at least 300 times the amount bet. It does not matter whether proceeds are in cash, property, or annuity form. Proceeds that are not in money are considered at fair market value. Remember also that, although gambling winnings from bingo, keno, and slot machines are not subject to withholding, you may need to make estimated tax payments to avoid underpayment penalties.

The tax withheld should be reported on line 64 of your IRS Form 1040.

The full amount of your gambling winnings for the year should be reported as other income on line 21 of Form 1040. You may not use Form 1040A or 1040EZ. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form.

If you itemize deductions, you can deduct your gambling losses for the year as other miscellaneous deductions on line 28 of Schedule A, Form 1040, but only to the extent of winnings. Therefore, your gambling loss deduction cannot be more than the amount of gambling winnings. There is no such thing as a “net” gambling loss.

Good recordkeeping is important, particularly if you have significant gambling winnings or losses. You should keep an accurate diary or similar records of your winnings and losses that support where your numbers came from.

When it comes to deducting gambling losses, you must be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses.

Professional gamblers can report the results of their activity on Schedule C, which is attached to their 1040. Schedule C, designed for income from a trade or business, allows for various categories of income and expense. The Supreme Court has defined a professional gambler as one who is involved in gambling on a regular and continuous basis.

Remember, there’s a reason they call it “gambling.” The odds are not in your favor, so you run the risk of losing income or savings essential for your livelihood. Be responsible. Should you or someone you know need assistance with a gambling problem, call (800) 522-4700.

For more information see IRS Publication 529, Miscellaneous Deductions or Publication 525, Taxable and Nontaxable Income, both available at IRS.gov, or call (800) 829-3676.

Your local CPA can help you address the many related financial questions and make the decisions that are best for you. Turn to him or her with all your financial questions. To find a CPA in Pennsylvania by location or area of expertise, visit www.ineedacpa.org.
About PICPA

The Pennsylvania Institute of Certified Public Accountants (PICPA) is a premiere statewide association of more than 22,000 members working in public accounting, industry, government, and education. Founded in 1897, the PICPA is the second-oldest state CPA organization in the United States.

Money & Life Tips are a joint effort of the AICPA and the Pennsylvania Institute of Certified Public Accountants (PICPA), as part of the profession’s nationwide 360 Degrees of Financial Literacy program.


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