According to the IRS, gambling winnings are always taxable. You might think that gambling winnings only includes money you obtain at a casino. Actually, gambling winnings refers to money won via any gambling activity, including:
Additionally, gambling winnings include noncash prizes. For example, if you won a vehicle or vacation in a raffle, these items are taxable at fair market value. Noncash prizes include houses and any other prizes. You must record all winnings from your gambling income on your tax return; otherwise the IRS may suspect that you are attempting to evade taxes. If convicted of tax evasion, you may go to prison for five years and have to pay a $250,000 fine.
Gambling Losses And The IRS
You are allowed to deduct your gambling losses from your tax return. However, restrictions apply. For instance, if your losses are greater than your gambling income, you are not allowed to deduct them. Also, you may only deduct your losses if you itemize them on your return. You may claim your gambling losses by filing Form 1040, Schedule A. Gambling loss deductions should be categorized as miscellaneous items; they are not subject to the 2% limit. You must be able to demonstrate that the losses you claim on Form 1040 are legitimate.
Keeping Track Of Winnings And Losses
Filing a tax return is confusing; we understand. However, you must make sure that all of the information you include on your tax return is completely accurate. If it isn’t, the IRS may launch an investigation against you for tax fraud or evasion. To make sure that you record you losses and winnings accurately, keep a written record (such a as a journal) of everything that you won or lost while gambling. Also, remember that gambling includes more than poker, slot machines and casino games.
Record the date and type of gambling activity you participated in, name and address of the establishment, names of people at the gambling establishment with you, and the amount that you won or lost. Do not deduct the amount of your losses from your winnings. Remember: the IRS requires your winnings and losses to be itemized. For instance, if you won $100 playing bingo, but lost $25 in another game at the same establishment, these winnings should be recorded as separate events.
Proving Your Losses And Winnings
In order to deduct your losses, you must be able to present actual evidence of the loss. For example, if you lost money playing Keno, keep the tickets you purchased. If you lost money playing slot machines, record the machine number and the amount of money you won. If you won/lost money placing wagers on race horses, keep a record of the races you bet on, amount of your wagers and the amount of money you won or lost. Similarly, keep a record of lottery tickets purchased, the dates of your purchase, winnings, unredeemed tickets and payment slips. You should also keep your winnings statement.
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