This weekend, the 140th rendition of the Kentucky Derby took place at the famous Churchill Downs in Louisville, Kentucky. This year’s winner was California Chrome. If you put some money down on this winning racehorse and won a pretty penny in cash because of it, don’t forget about Uncle Sam and your IRS tax responsibilities on these winnings.
Gambling and Taxes
While winning a nice sum of money is exhilarating, thinking about how much you’ll owe in taxes on it can extinguish this flame of joy pretty quickly. That is because gambling winnings are considered taxable income. They must be reported on your tax return when tax season rolls around.
Types of gambling income include money won from casinos, raffles, lotteries, and dog and horse races. However, cash prizes are not the only form of gambling winnings that Uncle Sam wants a cut from. By winning a noncash prize, you will likely be on the hook for paying taxes on the fair market value of such an item. These include houses, cars, boats, vacation packages, or electronics like flat-screen TVs or high-powered computers.
Based on how much you win at a gambling facility, the location may give you a copy of Form W-2G. This is a special IRS form often used to report certain winnings. In some instances, these facilities will actually withhold federal income taxes from your winnings before stroking you a check or handing you an envelope full of cash. If they don’t do so, you are responsible for reporting and paying taxes on what you win.
In addition to using Form W-2G, the full amount of your winnings within a year has to be reported on Form 1040, line 21. Plus, the IRS requires some taxpayers to pay estimated taxes on income earned from gambling, so don’t wait until April 15th because you may have additional tax payments to make.
Deducting Gambling Losses
While losing money through gambling is a financial hit, you may be able to write off some of these losses to ease the pain. If you itemize your tax deductions, you can deduct your gambling losses for a particular year using Form 1040, Schedule A, line 28. You should also save any tickets, statements, or receipts used to document your winnings and losses. This is similar to claiming other deductions since the IRS wants taxpayers to prove that they really qualify for these write-offs. Remember, though, that you are not allowed to deduct gambling losses that exceed your annual winnings.
To learn more about gambling and taxes you must pay on your winnings, turn to 1-800Accountant. Call 1-888-749-0117 or check out www.1-800Accountant.