If you win money betting on the Super Bowl this weekend, don’t spend it all right away – you’ll have to pay taxes on those earnings.
How much money you make when you gamble — whether it’s through gambling sites or app, casino, lottery or fantasy sports league — is considered taxable income by the Internal Revenue Service. Fair market value of Taxable non-cash prizesalso.
Usually, when you win $600 or more, gambling businesses will send you and IRS tax forms, usually W-2G, but sometimes 1099-MISC for lotteries or draws. prize winning.
The IRS may use these forms to verify your gross income when processing your tax return. If the winnings are $5,000 or more, your bet processing business can withhold up to 31% of the proceeds for federal income tax, according to the IRS. This will be indicated in Box 4 of your W-2G.
If you don’t get the forms, you don’t have a problem. You remain responsible for tracking and reporting all income earned through gambling. For that reason, experts recommend keeping a good record of your gambling wins and losses throughout the year.
Fortunately, many gambling sites and casinos have downloadable records of your bets.
Once you have your records together, you’ll need to report your winnings as “gambling earnings” on line 8 of Form 1040, Appendix 1, which is used to report income categories not listed on the main 1040 tax form. That total is then added to Form 1040 line 8in “other income.”
Your gambling losses will not be easily deducted
Your gambling wins and losses are reported separately on your tax return. The winnings you claim are earnings including gambling costs, or the original stake or bet.
Gambling losses can be deductible, but they cannot exceed the winnings you report as income. Your bet cost can be deducted as a loss also. However, gambling losses can only be claimed if you list your deductions in Schedule A of your Form 1040.
“Let’s say you bet $1,000 and you get $3,000 back,” said Romeo Razi, a Las Vegas-based certified public accountant. “You will report $3,000 and lose a $1,000 bet” as an itemized deduction.
However, most people don’t list their deductions. Instead of, they choose the standard deductionThis is a pretty hefty tax break totaling $12,950 for single subscribers in 2022.
For that reason, itemized deductions — including losses — may not be a concern because the total amount of those deductions may not exceed the amount you can claim with standard deduction.
You risk being fined or jailed for not reporting your winnings
If you do not report all your gambling winnings, you are breaking the law. The IRS can detect this by compare your income with W-2 forms they receive or by checking your bank deposit activity.
For large amounts, you can risk going to jail, and for smaller amounts, the IRS may assess additional penalties and interest. ONE 20% penalty can be applied if the total unreported amount is more than $5,000 or 10% of your actual tax liability — whichever is greater.
That said, more casual gambling does not involve W-2 forms, like fantasy football pool among friendsless likely to be noticed by the IRS.
But even with casual gambling, a large deposit or having someone send you what is described as winnings can still lead to an audit. For that reason, you should report everything.
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