Gambling income. Income from gambling includes winnings from the lottery, horse racing and casinos. It also includes cash and non-cash prizes. You must report the fair market value of non-cash prizes like cars and trips.
Payer tax form. If you win, the payer may give you a Form W-2G, Certain Gambling Winnings. The payer also sends a copy of the W-2G to the IRS. The payer must issue the form based on the type of gambling, the amount you win and other factors. You’ll also get a form W-2G if the payer must withhold income tax from what you win. The rules for when the income is required to be reported on form W-2G can be complicated. If any of the following apply expect to receive a W2-G.
The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine.
The winnings (reduced by the wager) are $1,500 or more from a keno game.
The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament.
The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are $600 or more and at least 300 times the amount of the wager.
How to report winnings. You normally report your winnings for the year on your tax return as “Other Income.” You must report all your gambling winnings as income. This is true even if you don’t get a Form W-2G.
How to deduct losses. You can deduct your gambling losses on Schedule A, Itemized Deductions. The total you can deduct, however, is limited to the amount of the gambling income you report on your return.
Keep gambling receipts. Keep records of your wins and losses. This means keeping items such as a gambling log or diary, receipts, statements or tickets.
Professional Gamblers. A different set of rules apply for professional gamblers. Here are a few issues:
Net income may be subject to self employment tax.
Losses are still only allowed to the extent of winnings.
Regular business expenses are allowed as deductions. So a professional gambler can claim an overall loss.
It is not unlikely that the IRS may question your status as a professional gambler so be prepared to back up your claim.
