Going to the casino and winning big is an adrenaline rush. This is especially true if you gamble regularly. But it’s not fun to pay taxes on the winnings. Gamblers know that all winnings are taxable. However, most people do not report their winnings unless he or she wins more than $1,200. $1,200 is the threshold of when the casino must report your winnings to the IRS on Form W-2G, Certain Gambling Winnings. If you gamble regularly, you could save on taxes by keeping a daily record of your gambling winnings and losses.
Most people will put gambling winnings on their tax return only if they receive Form W-2G. The total amount of gambling winnings is reported on page 1 of the IRS 1040 tax return. The casino never losses and most people lose more money than they win. So on IRS Schedule A, itemized deductions, you report an equal amount of gambling losses.
How to Pay Taxes on Gambling Winnings and Losses You must report your winnings. The first rule is that you must report all winnings. Both cash and the value of prizes are considered 'other income' on your Form 1040. If you’re a professional gambler. Does the tax picture change if you.
For example, you received three Form W-2Gs for a total of $5,000 of gambling winnings. $5,000 is reported on page 1 of the IRS tax return as income. Then $5,000 of gambling losses is reported as an itemized deduction.
1) You are required to report all gambling winnings even if you don’t receive Form W2-G.
2) If you do not qualify for itemizing your deductions, then you will not get any tax benefit for the gambling losses.
3) There is no gambling loss deduction for Michigan income taxes. You will pay state income taxes on all gambling winnings reported.
A better method for keeping track of your gambling activities is to create a daily log book. Maintaining a record of your winnings and losses on a daily basis may reduce your taxes. In your daily log book, record the gambling activities for the day. For example, you started with $1,000 and left the casino with $800. You do not have to record every wager throughout the day. In your daily log book you would write the date, started with $1,000, left with $800, and $200 loss.
At the end of the year, add up all the days with gambling winnings. Then on a separate line add up all the days with gambling losses. These two numbers are the gambling winnings and losses that should be reported on your tax return. If done correctly, you will generally report less taxable winnings on your tax return.
Take in consideration the previous example; you received three Form W-2Gs for a total of $5,000. However, your total amount of gambling winnings reported in your daily log book is $3,000 and the total amount of gambling losses is $7,000. $3,000 of winnings is reported on page 1 on your IRS tax return as income. Bert and ernie casino scene. Then $3,000 of gambling losses is reported as itemized deductions. Compared to the previous example, you will pay less Michigan income taxes and potentially less IRS taxes.
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IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.