Despite the fact that many people think gambling does not include activities such as buying the lottery ticket from time to time, the Internal Revenue Service (IRS) claims that besides this, casual gambling also includes casino games, poker, sports betting and online betting. When you earn money this way, your winnings become taxable income, subject to tax rules applied to these cases.
According to the IRS, if you win, you may receive a Form W-2G, Certain Gambling Winnings, from the casino. The form provides an information to you and the IRS about the amount of your winnings. The casino issues the form based on the amount and the type of gambling. Form W-2G might be received when holding back federal invoice taxes from the winnings. There are the cases when you do not receive a Form W-2G, but in spite of this, you are obliged to report your winnings in order to pay the taxes for them. Table games in a casino, such as blackjack, roulette or baccarat are the exception from the Form W-2G. But, of course, this doesn’t mean you don’t have to register the income and pay taxes on it if your winnings aren’t high enough to warrant the tax form.
There also exists a section “Other Income” on Form 1040, for reporting winning of casual gamblers.
The money lost on gambling can be subtracted using a form Schedule A, under section Itemized Deductions. Your winnings must be reported as income and your losses must be displayed separately. You can’t just take away your losses from the winnings and report the difference that you got.
You are advised to keep precise track of your activities involving gambling. This includes tickets or receipts. Keeping notes can help you save all of your activities in one place in order to go through them when needed. Your notes should show your winnings on one side and losses on the other. You shouldn’t connect them to each other.
There are special rules applied to professional gamblers. They report gambling winnings and losses for federal purposes on Schedule C, Profit or Loss from Business. The professional gamblers are viewed as engaged in the trade or business of gambling. To calculate business income, the taxpayer may finalize all wagering activity but can’t report an overall wagering loss.
Tax laws concerning gambling and other alike activities will continue to evolve as new types of games and technologies appear. There is the issue of whether daily fantasy sports are considered gambling. Many states legalize online gambling and daily fantasy sports, so the IRS has to address these issues.