Gambling Taxes: How Much You'll Owe When You Win (2024 Update)

Although it might seem like you’re earning free money when you emerge victorious from a casino, there are taxes to owe on the money. These taxes are required by law, as the government wants a cut of the earnings. What can you expect when considering gambling taxes?

If you’re interested in learning more about taxes associated with gambling, you’re in the right place. The better you understand what you might owe on your winnings, the easier it is to keep everything in line as you go about your adventure in the casino. Read on to learn more about gambling tax fundamentals and other helpful information.

Gambling Tax Fundamentals

No matter how much you win from gambling, you should prepare yourself for paying taxes. It’s rare for money to come free, and gambling taxes are no exception. The more you win, the more you can expect to pay gambling taxes to the government come tax season. 

Let’s dive into some of the fundamentals of the gambling taxes. From understanding that there could be audits to accessing Form W-2G, it’s vital to know what you’re looking for if you earn a significant amount of money in the casino. The more prepared you are, the easier it will be to be realistic with your winnings.

1. There Could Be Audits

First, note that high earnings in gambling make a high possibility you will get audited by the IRS when tax season rolls around. This information is especially true if you deduct gambling losses on your tax form, which most people choose to do. When filing this form, the IRS also receives a copy.

If you are a gambler and want to deduct your losses, you’re only allowed to do it on Schedule A up to the amount of the winnings. If you are someone deducting on Schedule C, you could get into trouble - the IRS will not be happy if you’re deducting something that appears to be a hobby instead of a business expense.

2. Report Separately

Whether you win or lose money from gambling, it’s vital to report it separately on your tax return. You shouldn’t mash all earnings and losses together in one thing, you should report each of your earnings individually for the sake of the IRA. For example, four winnings of $100 in different situations should all be reported separately to ensure no confusion.

Many people assume you can combine your winnings and losses. For instance, if you won $1,000 but lost $800, most assume you only must report $200. However, that isn’t the case - you must report $1,000 as an earning and $800 as a loss on your tax return.

Related: How to Prove Gambling Losses (U.S Taxes)

3. Consider Deductibles

If you had a terrible night in the casino, it’s valuable to consider possible deductibles for the experience. Of course, there are some vital specifications you must consider first.

Many people forget that deductions can only be made if they itemize losses. Unless you’re a professional gambler, itemizing losses is rarely worth it. Additionally, if you decide to go the standard deduction route, you won’t be able to deduct anything from your poor gambling experience.

Also, you must be able to provide proof of your earnings - tickets, statements, receipts, and if you are itemizing deductions, keep proof of these things as well.

4. Your Winnings Might Be Withheld

Withholding might be a requirement depending on where you win your cash. For instance, if you win more than $5,000 and the payout is around 300 times the total size of your bet, the IRS might have the casino withhold around 24% of your winnings on your behalf. These are to ensure you have enough money to pay the associated taxes come tax season. 

Once you file, you can include the withheld taxes on your 1040 and it’ll be taken out from the taxes owed. Also, note that you must gamble at legally owned locations otherwise there could be major penalties when you go to file.

5. Look For Form W-2G

Finally, many gamblers will find themselves with Form W-2G if they receive ample earnings from their gambling experience. If you earn at least $600 and the payout is around 300 times larger than your bet, you’ll need to file this form. Most casinos provide them along with qualifying winnings.

You will know if a W-2G is necessary because the payer must see two of these items:

●      Taxpayer identification number

●      Social security number

●      Photo identification

Some locations might provide you with a W-2G form right away. Others might be later, but they should provide you with the form before the end of January in the tax year the winnings are to be paid.

How Do Gambling Taxes Vary by State?

Your gambling wins are taxed at the federal and state level. The rules and regulations for your gambling taxes will depend on your state as well as whether or not you played online or in person.

For example, some states might use a flat rate method to take your gambling taxes. On the other hand, some states will attach the rate to your income tax rate. It’s vital to examine the regulations in your state before making a final decision. 

Many states will include your taxes in all your income. However, others might want to tax them separately. Also, if you play in another state, or online, your taxes could become even more complicated. 

Related: Winning Money? How the IRS Taxes Gambling

Final Thoughts

Although it might seem tempting to assume gambling winnings are free, you must pay taxes on what you earn. You might have to withhold, and what you owe will vary depending on the state where you reside. Remember that gaming, sports betting, and lottery winnings are all considered gambling winnings. 

We hope this information is beneficial as you gamble. These are items you shouldn’t ignore, or they will come to bite you if too much time passes.  

This information is not official tax advice. If you have any questions on money owed or other gambling tax questions, contact a certified accountant for official assistance. 

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