IRS and Gambling
Every week or so, when I think about it, I spend a buck or two on the Lottery. American’s are risk takers. We are gamblers. It’s part of our DNA. Every time we buy a product or service we are making a bet that we’ll be happy with the results. Sometimes the odds are in our favor, but there are also times when we cross our fingers.
Would you buy a ticket to watch our Bobcat’s if you knew in advance they were going to lose? No, you go with the expectation that you’ll witness a victory. And if you are very confident of their winning chances you might even put a couple of bucks down.
Gambling Winnings are Taxable
Many people are not aware of how gambling taxes work. If you are a fan of the TV show, “The Price is Right,” those folks are on the hook for the dollar amounts they win in those multi-thousand dollar showcases. You win a $60,000 car and the IRS adds $60,000 in cash to the income on your tax return.
But you say, “Hey wait! It’s not cash.” The IRS doesn’t care. They only see value in dollars and want their “fair share,” in cash, of your winnings. Always consult a qualified tax professional when dealing with tax issues.
Gambling Losses are Deductible
Yes, you are taxed on your winnings but you are also able to deduct your losses. Winnings are reported on Line 21 of your 1040 under “Other Income.” List your losses in the “Other Miscellaneous Deductions” on Schedule A of your yearly tax return. The bad news is that you can’t take a loss of income from gambling losses.
If you are lucky enough to win one of the big lotteries, taxes will almost always be taken before you receive your cash reward. Twenty-five percent or so is normal. Some gambling houses will simply ask for your Social Security or Tax ID number and they will send a Form W-2G to the IRS detailing your income and if any deductions taken.
Losses To The IRS
Billions of dollars change hands each year that are never reported to the IRS. In-house office pools, and bars, have under the counter betting on almost every sporting event.
Even Warren Buffet offered a billion dollar, 40-year payout, to anyone who could accurately predict every game in the NCAA Basketball Tournament. Predicting the correct outcome of over 30 games is a little tough.
It’s estimated that $2.5 billion is bet on the Final Four each March and the IRS will not be able to collect a dime of that unreported income. That’s about $6 billion dollars or a lot of food stamps.
Some Final Thoughts
As I said earlier, I play the lottery from time to time. I’m not a card player or online gambler but there is legislation pending to tax online winnings. At least there is a way to track those winnings.
I really don’t have a problem with that. I think income is income and if you are a successful player you could make some extra income now and then. The downside of course is the attraction of the addicted gambler.
It’s not likely that gambling can be totally outlawed. Betting is part of our vocabulary and our psyche. In fact, I bet you didn’t declare any gambling winnings on your taxes this year. Safe bet? You tell me.