By JLP | February 7, 2008
As a blogger, I get lots of article submissions and press releases sent to me on a daily basis. Normally, I ignore them but I thought this one was worth sharing. I received this last week before the Super Bowl but am just now getting around to posting it.
The IRS Knows What Happens in Vegas…
A Tax Tip from the Experts at J.K. Lasser
Thinking of placing a bet on your favorite Super Bowl contender? Keep in mind, the Internal Revenue Code is unkind to winners — and it doesn’t much like losers, either. If you win you must report your winnings. You can offset the tax bite by claiming your gambling losses, but that isn’t as easy as it sounds.
How do they know what you’ve won?
The casinos tell the IRS and sometimes withhold up to 28%.
Rules for Tax Reports and Withholdings on Winnings
- Slot machines and bingo: Payouts of $1,200 or more are reported to the IRS, but there is no withholding taken out.
- Keno: Similar to slot machines, but the amount won must be at least $1,500.
- State lotteries and sweepstakes: Withholding is taken out of all winnings of more than $5,000.
- Parimutuel pools, including horse and dog races: Subject to withholding, but only if the winnings are both more than $5,000 and at least 300 times as large as the amount bet.
- Big winners are reported to the IRS on a special Form W-2G.
- If winnings are to be split, as with a lottery pool, winners are reported on a Form 5754.
Pooling money to buy lottery tickets is common among employees and friends. But whether there are two or 200 in the pool, there is going to be only one winning ticket, and somebody has to turn it in. If you are that someone, make sure you fill out a Form 5754. If your share of a $5 million prize is $1 million, you do not want to be stuck with paying income tax on the entire $5 million.
Is there anything a winning player can do to lower the bite of the income tax? And what about those who gamble and lose? The law does allow players to take gambling losses off their taxes, but only up to the amounts of their winnings.
- You may deduct gambling losses only if you itemize deductions.
- Claim your gambling losses as a miscellaneous deduction on Form 1040, Schedule A.
- The amount of losses you deduct may not be more than the amount of gambling income you have reported on your return.
- It is important to keep an accurate diary or similar record of your gambling winnings and losses.
- To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.