Reporting Gambling Winnings or Else Risk the IRS’s Unwanted Attention
With the explosion of legal gambling throughout the country at casinos, race-tracks and sports books, many more people have decided to press their luck and are walking away with a little extra cash in their pockets these days. While the exhilaration of enjoying a hot streak at the poker table or hitting the jackpot draws people back to the casinos time and time again, many recreational gamblers may not realize that all of your gambling winnings are taxable.
If you are fortunate enough to enjoy a bit of luck, you should know that Uncle Sam wants a cut of your winnings no matter how you do it. Failure to report your winnings can draw some unwanted IRS attention, especially if the casino or other venue reports the amounts on Form W-2G. The IRS has an automated program that matches data on third-party information returns, such as the W-2G, with income and deductions shown on individual returns. Therefore, if a mismatch is discovered with a significant discrepancy, the IRS will notify you of this error and seek the additional taxes you owe on your winnings.
It is also important to remember that while all gambling winnings are taxed, losses can only be deducted if you itemize them and then only to the extent of winnings reported as other income on your return. Losses are treated as miscellaneous deductions on Schedule A, but they are exempt from the offset of 2% of AGI that applies to most miscellaneous deductions. Furthermore, to deduct your losses, you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses. Finally, remember that costs of lodging, meals and other gambling-related expenses cannot be written off either.
A hot streak at the casino, the racetrack or sports book may have you feeling lucky, but it is prudent not to press your luck by failing to report your winnings to the IRS.