1. GAMBLING winnings are always taxable and must be reported on your tax return – with or without form W-2G.
2. Gambling income includes winnings from lotteries, raffles, horse and dog races and casinos. It also includes the fair market value of prizes such as cars, houses, trips or other noncash prizes.
3. Complimentary goods and services such as lodging, shows, gifts, meals, and other perks are also considered gambling winnings.
4. Gambling winnings for recreational players like you and me are reported as miscellaneous income.
5. Report the full amount of winnings. Do not offset winnings and losses and only report only the net. IRS computers are programmed to catch unreported income, see a mismatch from W-2Gs from casinos.
6. Professional gamblers report income and expenses on Schedule C Income from Trade or Business.
7. Gambling income is not subject to self-employment tax (FICA and Medicare).
8. Claim your losses as itemized deductions on Schedule A.
9. You cannot deduct gambling losses that are more than your winnings. If you win $1,000 but lose $600, you pay tax on the net gambling winning of $400. If you lose $1,200, you can only use $1,000 to offset the winning of $1,000 for a wash (net loss of zero).
10. To deduct your losses, you must be able to provide receipts, tickets (not the ones with footsteps on them), statements or other records that show the amount of both your winnings and losses.
* * *
Victor Santos Sy, CPA, MBA, provides professional services in accounting and tax controversy including IRS audit defense and offers in compromise. He also advises clients on choices of entity including corporations for small businesses and LLCs for rentals. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation at 704 Mira Monte Place, Pasadena, CA 91101. The firm celebrates its 35th anniversary this year. You may email tax questions to Vic at [email protected]. You are welcome to visit our website for more than 300 tax tips at www.victorsycpa.com.