Facts: John Coleman was a compulsive gambler who admitted that his gambling had negatively impacted his finances and his family life. Although he had substantial earnings through the years as an insurance agent, he had been delinquent in paying multiple bills, including property taxes, because of his gambling habit.
Thus, the IRS prepared a substitute for return for him and issued a notice of deficiency. Coleman gambled at four casinos during , and he did not have complete records of his wins and losses for the year. Two of the casinos tracked Coleman's wins and losses when he was using casino - issued rewards cards, but he did not always use these cards. Coleman gambled extensively during , predominantly at slot machines.
Coleman often withdrew cash from his bank account on the way to the casino. If he ran out of money while gambling, he would withdraw money from an on - site ATM, get a cash advance from the casino, or obtain an advance on a debit or credit card.
Coleman had no significant changes in his lifestyle during Special withholding rules apply for winnings from bingo, keno, slot machines and poker tournaments. The amount withheld will be listed in Box 4 of the W-2G form you'll receive. You'll also have to sign the W-2G stating, under penalty of perjury, that the information listed on the form is correct.
When you file your next year, include the amount withheld as federal income tax withheld. It will be subtracted from the tax you owe. You'll also have to attach the W-2G form to your return. Again, this is what to expect when you plunk down a bet at a casino, racetrack, or with some other legally operated gaming business … don't expect your buddy or the guy in accounting who's running an office pool to withhold taxes although, technically, they should.
Did you have a bad night at the blackjack table or pick the wrong horse to win? There's a silver lining if you lose a bet or two—your gambling losses might be deductible. Gambling losses include the actual cost of wagers plus related expenses, such as travel to and from a casino or other gambling establishment.
There are a couple of important catches, though. First, unless you're a professional gambler more on that in a second , you have to itemize in order to deduct gambling losses itemized deductions are claimed on Schedule A. Since the tax reform law basically doubled the standard deduction, most people aren't going to itemize anymore. So if you claim the standard deduction, you're out of luck twice—once for losing your bet and once for not being able to deduct your gambling losses.
Second, you can't deduct gambling losses that are more than the winnings you report on your return. If you were totally down on your luck and had absolutely no gambling winnings for the year, you can't deduct any of your losses.
If you're a professional gambler , you can deduct your losses as business expenses on Schedule C without having to itemize. However, a note of caution: An activity only qualifies as a business if your primary purpose is to make a profit and you're continually and regularly involved in it.
Sporadic activities or hobbies don't qualify as a business. Gambling winnings and losses must be reported separately. As the above rules should make clear, you must list both your total annual gambling winnings and losses on your tax return.
If you're audited, your losses will be allowed by the IRS only if you can prove the amount of both your winnings and losses. You're supposed to do this by keeping detailed records of all your gambling wins and losses during the year. This is where most gamblers slip up—they fail to keep adequate records or any records at all. As a result, y ou can end up owing taxes on winnings reported to the IRS even though your losses exceed your winnings for the year.
This has happened to many gamblers who failed to keep records. He subtracted his losses from his winnings and ended up with zero; so he figured he didn't have any gambling income to list on his return. Makes sense, doesn't it? Not to the IRS. Remos was audited by the IRS. Gambling is a cash business, so how will the IRS know how much you won during the year? Unfortunately for gamblers, casinos, race tracks, state lotteries, bingo halls, and other gambling establishments located in the United States are required to tell the IRS if you win more than a specified dollar amount.
You're given a copy of the form as well. When a W2-G must be filed depends on the type of game you play. Thus, if you have one or more wins exceeding the reporting thrseshold, the IRS will know that you earned at least that much gambling income during the year. It includes cash winnings and the fair market value of prizes, such as cars and trips.
A payer is required to issue you a Form W-2G, Certain Gambling Winnings if you receive certain gambling winnings or have any gambling winnings subject to federal income tax withholding. When you have gambling winnings, you may be required to pay an estimated tax on that additional income. For information on withholding on gambling winnings, refer to Publication , Tax Withholding and Estimated Tax.
You may deduct gambling losses only if you itemize your deductions on Schedule A Form and kept a record of your winnings and losses. The amount of losses you deduct can't be more than the amount of gambling income you reported on your return.
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