If playing the odds is a pastime you enjoy there are some stringent rules that apply. Winnings derived from casual gambling are fully taxable and must be reported on your tax return. Gambling income includes but is not limited to winnings from a lottery raffles horse races and casinos. Also included are cash winnings and the fair market value of prizes such as cars and trips.
The payer of the winnings is required to issue you a Form W-2G Certain Gambling Winnings if you have any gambling winnings subject to federal income tax withholding. All gambling winnings must be reported on your Form 1040 including winnings that have no withholding. You may also be required to pay an estimated tax on your gambling winnings.
Gambling losses may be deducted only if you itemize deductions and do not take the standard deduction. If you itemize your deductions you may not deduct losses of more than the amount of gambling income you reported on your return. Losses should be claimed on Form 1040 Schedule A as a miscellaneous itemized deduction that is not subject to the 2% limit. Nonresident aliens of the United States cannot deduct gambling losses on Schedule A of Form 1040NR.
Records of gambling winnings and losses should be kept in an accurate ledger. In order to deduct your losses you must be able to provide receipts tickets statements or other records proving the amount of both winnings and losses.
For more information on reporting gambling winnings contact Lindemeyer CPA.