If you thought that once you win big on a slot machine you get to collect all the money and leave jolly, you’re greatly mistaken. All of your winnings need to be taxed by the IRS because this money is no different from the money you’ve earned. Every American citizen knows how important paying taxes is; hence, why you should in no way ignore the gambling taxes. Otherwise, you would be facing charges for tax evasion. So what is it exactly that you need to do once you win some money?
W-2G Form — The Whats and Hows
This form is a piece of paper a casino should provide you with once you decide to withdraw your winnings. Using this form, you will report all your winnings, as well as the Federal Tax on those winnings. This includes all types of gambling and any kinds of games. Your winnings are considered as ‘other income’ — And most of the major casinos are obliged to provide you with the W-2G. So if you win $1200 or more on Bingo and slot machines, you will have to report it. The same goes if you win over $1500 playing Keno and over $5000 in poker tournaments.
This means you still have to pay the taxes on your winnings (20%–25% of the overall amount), but if you win anything below these digits, you will have to get the form by yourself. In these cases, a casino is not legally bound to provide you with one. A lot of American gamblers keep wondering how are gambling winnings taxed, so hopefully this text clears it all out.
What If I Win Non-Cashable Prizes?
Should you win a car, a MacBook, or any other prize that is not money, you still have to pay the taxes in the market value of these awards. And even if your prize is a trip to the Maldives, you won’t be exempt from your citizen responsibilities.
The 5754 Form
In some other cases, you will need this piece of paper as well. If you played with your friends and you decided to split all the winnings, this is the form a casino will hand out to you. In this document, all of the winners need to fill out the necessary information, and all of the winners will be taxed.
But I’m Not a US Resident
Don’t worry, the IRS covers you as well. If you’re just a tourist who won in one of the many Las Vegas casinos, you will still need to split the cost with the Government. In this case, you should ask for the Alien Income Tax Return form. It’s more or less the same. However, it asks for a lot more information from you. For example, when was the first time you entered the USA, what’s your home country and your address, etc. Nothing too complicated — just more time consuming from what you’re probably used to doing.
Tax Deduction — Am I a Candidate?
The IRS offers tax deduction in case you lose a lot of money. Here’s an example: Let’s say you won $10,000 in 2018 and you neatly paid all the necessary taxes as any law-abiding citizen should. Sadly enough, 2019 is not your lucky year, and you lost $11,000; this is the moment you’ve been looking for. The IRS will deduct $10,000 off your taxes, which means you will have to pay only $1000. Before you get to do this though, there are certain documents you will need to file as proof. Hence, why you need to record a couple of things whenever you’re gambling:
- The date you gambled on and the type of games you used
- The name and the location of the casino
- The names of other people who were there with you
- The exact amount of money you lost or won
- All of the related receipts, bank statements, and payment slips
Make sure to keep track of all of these things. Otherwise, the IRS won’t help you with your losses.
Illegal Gambling Is Not an Exception
Sports betting is still illegal in the USA. As a result, many online casinos offer this service illegally. Either that, or they found a legal loophole. Only five states in the USA have legalized sports betting so far.
- US Virgin Islands
So if you decide to bet on sports in any other of the states, it is considered illegal. However, the most interesting thing is that you will still need to pay taxes for your illicit winnings. Americans spend nearly $150 billion on illegal sports betting, and because of that, the Supreme Court is considering legalizing it within the entire country.
It’s Easier If You’re a Professional
The problem about these tax forms is that they label your winnings as ‘other income.’ With this, you’re testifying that your winnings are not your main source of monthly income. But what if gambling is your job? What if you’re a gambling professional and these winnings are indeed your main source of income? — Well, then you can file for the 1040 form, or Schedule C, as many like to call it. Should you use this form, you would be proving that you’re a self-employed individual. In other words, that you have your own business.
And why is this so important for you? Mostly because there are certain benefits that could help you cut your losses.
- The cost of all the magazines related to your industry
- A portion of your Internet bill in case you gamble online
- The costs of your meals and other tournament expenses
Gambling is your day-to-day job, and it is crucial the IRS is aware of it.
Now You’re and Educated Gambler
Congratulations, now you can go and gamble all you want without having to worry about what you should do with your winnings. Best of luck out there, and remember to stay responsible at all times.