If you have clients who repeatedly report income from gambling winnings, the tax processes are vastly different. All gambling winnings are taxable income, meaning income subject to both federal and state income taxes.
According to the IRS, gambling income can include horse and dog racing gains, raffle winnings, lottery earnings, casino games, poker games, and even sports betting winnings. As winnings increase, so, too, do taxpayer responsibilities. The more won, the more paperwork, and the higher amounts due to the government agency.
More importantly, if your clients have reached certain winnings thresholds, you know Form W-2Gs are essential. Determining which gambling winnings must be reported can be a convoluted process.
Once your client has hit certain winnings thresholds, he or she will be required to submit a Form W-2G. Deductions also come into play when it comes to taxable gambling income, as losses are inevitable. Taxpayers are able to deduct gambling losses only up to the amount of gambling winnings, and these are required to be filed as miscellaneous itemized deductions.
It’s critical to properly record gambling winnings and losses, with proper documentation of the date and type of the wager or wagering activity, the name and address of the gambling establishment, the amount won or lost, and the names of witnesses who were present with the taxpayer at the time of the wager. If audited, your clients’ losses will be allowed only if you can prove to the IRS the amount of both winnings and losses, which requires detailed records.
To assist you further, Community Tax has come up with an infographic containing some pertinent information as it regards to gambling winnings reporting. Check it out below:
Jacob Dayan is partner and co-founder of Community Tax LLC, a full-service tax company helping customers nationwide with all of their tax resolution, tax preparation, bookkeeping, and accounting needs.