Have you ever found yourself on the lucky side of a casino, a lottery ticket or a riverboat? If so, listen up! You may feel lucky, but don’t forget about the IRS.
Every year when we prepare tax returns for clients, we come across the lucky individual who receives a W-2G from their favorite casino, riverboat or lottery game. For most of these individuals, all it took was one lucky spin at the slot machine to win more than $1,200. Before they even receive their money, a casino employee is asking for two sources of identification and their social security number in order to notify the IRS about their luck.
5 Considerations When Receiving Gambling Winnings
There are five key items to consider when you receive gambling winnings:
- Even though the IRS is only notified when an individual wins over $1,200 in a single transaction, taxpayers are required to report all gambling winnings.
- While gambling losses can be deducted to the extent of gambling winnings, gambling losses are reported as itemized deductions. Gambling winnings increase your adjusted gross income (AGI), which in turn can cause you as a taxpayer to lose certain deductions.
- Some states where casinos are located, such as Indiana, require the casinos to withhold state income tax. Taxpayers should be sure to pick up this withholding on their home state tax return as a credit for taxes paid to other states.
- While for the most part gambling winnings are not taxed by municipalities, several municipalities have passed or are proposing ordinances that would make the winnings taxable. Be sure to check how the municipality where you live or where the casino is located treats gambling winnings prior to filing your tax return.
- Be sure to keep your copies of the W-2G you received from the casino. This is your only copy and you usually will not be sent an additional one.
Email Rea & Associates to learn more about what filing prize winnings with the IRS.