IRS Reminds Taxpayers To Report Gambling Winnings

by Leroy Baker, Tax-News.com, New York

11 August 2009

The US Internal Revenue Service has reminded taxpayers that they must report gambling winnings and losses on their income tax returns.

“You may know when to hold ’em and when to fold ’em but do you know how and when to report ’em?” the IRS asked in a "Summertime Tax Tip" issued on August 7. “Whether you are playing cards or the slots, it is important to know the rules about reporting gambling winnings and losses.”

Under current rules, US taxpayers must include gambling winnings on Form 1040. If a taxpayer itemizes deductions, gambling losses suffered during the tax year can be deducted, but only up to the amount of an individual’s winnings.

Winnings from lotteries and raffles are considered gambling winnings under the tax rules. In addition to cash winnings, the fair market value of non-cash prizes, such as bonds, cars, trips and houses, should also be declared as income.

Generally, if state lottery prizes are paid to the winner in instalments, the annual payments, together with any amounts received which are designated as interest on the unpaid instalments, must also be declared, as must future lottery payments sold for a lump sum.

Here are seven things the IRS wants you to know about reporting what Lady Luck has sent your way:

• All gambling winnings are fully taxable.
• Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, poker tournaments and casinos. It includes cash winnings and also the fair market value of prizes.
• A payer is required to issue you a Form W-2G if you receive certain gambling winnings or if you have any gambling winnings subject to federal income tax withholding.
• Even if a W-2G is not issued, all gambling winnings must be reported as taxable income. Therefore, you may be required to pay an estimated tax on the gambling winnings. For more information on paying estimated taxes, refer to IRS Publication 505, Tax Withholding and Estimated Tax.
• You must report your gambling winnings on Form 1040, line 21.
• If you itemize your deductions on Form 1040, Schedule A, you can deduct gambling losses you had during the year, but only up to the amount of your winnings. Your losses are not subject to the 2% of AGI Limitation.
• It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.

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