How to Claim Deduction for Gambling Losses and Pay Taxes on Winnings?Last Revised on December 4, 2010
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In gambling ( such as lotteries, raffles, horse racing and casinos games), there are only two things that are possible – win and lose money. Most of the gamblers are pretty disorganized by nature, for whatever reason; and thus they are prone to losing and not keeping track of their gambling records. It is important to because at the end of the year you have to file taxes, especially if you get lucky and win tons of money. You have to claim your winning money as part of your income since gambling winning or earnings are taxable. However, if you lose money you are responsible to claim the losses that way you can earn some deductions. This is not much important for IRS, what is important to them is that you document all the money you won by gambling in your tax return accurately; otherwise you may be subject to be audited.
Lets first discuss How to claim tax deduction for gambling losses? It is pretty simple, you add all the accurate amount of money in gamble and declare that lost in Schedule A section under “Other Miscellaneous Deductions” on line 27 of 1040 tax return form and fill it out thoroughly. The only complicated part is that you have to itemize that deduction when calculating. Most of the gamblers lose more money than they win. However, if they do win more money; they can’t claim or deduct more than winning amount. It has to be either equal or less than the sum prize. Therefore, gambling losses are not subject to 2 percent limit, where only the extent of gambling winnings that exceed 2 percent of your adjusted gross income are deductible. And always be ready to be able to provide the proof of losses, which could include but not limited to log detailing the date of wagers, the location, amount bet, and the type of gaming, receipts; tickets, statements, invoices, check copies, etc. And you can’t include the expenses associated with gambling such as transportation and communication costs. Although IRS consider gamble winnings as income, the expenses are considered personal outlays unless you are a professional gamblers. The professional gamblers, like those that play in tournament to earn a living, can call gambling as a business in their taxes. So when they have out-of-pocket expenses we discussed above, they can add them under the Schedule C. This pretty much cover everything to know about how reduce your taxes with gambling losses. They call them earnings instead of winnings.
You must enter gambling winnings to be able to deduct gambling losses. So now lets move on to answer the question How Do I Pay Taxes on Gambling Winnings? I am glad you are willing to pay taxes, especially from gambles which is taxable. A lot of people assume IRS can’t catch them unless they win like a million dollar lottery prize. IRS is automatically notified by the payer whenever a gambler wins $600 or more (and that amount is 300 times your bet) at a horse track, win $1,200 at a slot machine or bingo game, or take $1,500-plus in keno winnings and $5000 at the poker tournament. This is why they get your Social Security number because it is an extra income. If you win a non-cash prize, such as a car or a trip, you will be responsible for the taxes on the fair market value of the item or items (if the value exceeds $5,000). In return for giving that information, the payer will later send you Form w-2g. It is similar to w-2 form, except w2g form will include what you won for that short time along with taxes you paid and withheld. You will find a space to fill these information in Line 21 of 1040 form. However, regardless of the amount of winnings, W2-Gs are not required for earnings from table games such as blackjack, craps, pai gow, baccarat and roulette. When you are ready to send your federal tax return, attach that w-2g form with it. When reporting the winnings, you cannot use for 1040EZ since you have to itemize the earnings and losses from gambles.
The best idea is to keep record of all the gambling transaction so that you can file pay taxes on your taxable gambling income, claim deduction on the losses and not get audited by IRS officers.
How much tax IRS charges for cash prizes? No matter what state you live in, the taxes IRS will charge you on cash prizes will depend on which tax bracket you fall into and whether or not the they deducted the taxes when you won during the contest. Usually these prizes are counted as unearned income and thus taxed along with your normal income, at 15% which is what most average people tax bracket.
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