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Gambling and taxes
Tax time is just around the corner
This is no one's favorite topic, especially at this time of year, so just consider it a public service announcement: you must pay taxes on the amount of your gambling winnings that exceed your gambling losses.
I know, I know; everyone understands about death and taxes. But what may come as a surprise is that you must report the total gross winnings as income and must deduct the losses as an itemized deduction. You may not simply subtract the losses from winnings and report the net. Nor may you, if losses exceed winnings, simply ignore the whole thing and not report anything.
Even though the end result may be the same, you still have to report all your winnings and deduct your losses, and then only losses up to and not exceeding your winnings. When you sign your return, you are swearing that it is an accurate representation of what happened during the year, and it is possible you may be penalized even though you owe no taxes.
The problem starts when you win a jackpot of $1,200 or more. At that time, the casino is obligated to give you a W-2G, a copy of which is sent to the Internal Revenu Service. The W-2G reports the amount of the jackpot, the amount of federal tax withheld (which, believe it or not, is optional for winnings below $5,000) and, in the case of states with income tax, the amount of state tax withheld (which is not optional).
Once the government receives that W-2G, you are now in the system. And if that jackpot came near the end of the year, you'll be wishing you had kept an accurate record of your losses all year long. It's a must to have a descriptive gambling diary with entries recorded on a daily basis in your own handwriting. I use a six-column journal with room for date, casino, type of machine played, the number of the machine, hours played and amount won or lost.
Then, after all that, the IRS still wants some sort of corroborative backup, like the casino's computer printout of coin in and coin out for your play. That's another reason you always want to have your player's club inserted into the card reader.
Of course, if you play only at machines whose jackpots never reach $1,200, you may think you're in the clear. No need to report anything? I wouldn't bet on it. The law says you must report all your winnings. Do it. Life is too short to always have to be looking over your
shoulder, worrying about the IRS.
So far, we've discussed only machine play. There's still the matter of table games. If you win a high-odds table bet of at least $600, a W2-G is issued when the proceeds are more than 300 times the amount wagered. This could easily apply to some Let It Ride and Caribbean Stud winnings.
So, where do you enter all this information on your tax return? The winnings go on the front of 1040 under “Other income.” The amount of federal income tax withheld goes on the back under “Federal income tax withheld from Forms W-2 and 1099.”
Gambling losses are deducted on Schedule A under “Other Miscellaneous Deductions,” but only up to the amount of winnings. If your losses exceed your winnings, you're out of luck, and excessive losses cannot be carried forward to the next year.
State income taxes withheld are entered on Line 5 of Schedule A, “State and local income taxes.”
If you don't itemize your deductions, you're also out of luck.
Plus winnings reported on Form 1099 cannot be offset by losses. A Form 1099 is triggered, for example, when you win a no-entry-fee slot tournament prize of $600 or more.
All this, and I haven't even touched on the necessity of estimated tax payments or the 2002 changes in the State of Mississippi's income tax withholding.
Sound complicated? It is. That's why I urge everyone to consult with a tax preparer with expertise on gambling income.
Until next week, aces and faces to you.
Linda Mabry lives on the Coast and may be contacted through her e-mail address, lnmabry@cableone.net.
This is no one's favorite topic, especially at this time of year, so just consider it a public service announcement: you must pay taxes on the amount of your gambling winnings that exceed your gambling losses.
I know, I know; everyone understands about death and taxes. But what may come as a surprise is that you must report the total gross winnings as income and must deduct the losses as an itemized deduction. You may not simply subtract the losses from winnings and report the net. Nor may you, if losses exceed winnings, simply ignore the whole thing and not report anything.
Even though the end result may be the same, you still have to report all your winnings and deduct your losses, and then only losses up to and not exceeding your winnings. When you sign your return, you are swearing that it is an accurate representation of what happened during the year, and it is possible you may be penalized even though you owe no taxes.
The problem starts when you win a jackpot of $1,200 or more. At that time, the casino is obligated to give you a W-2G, a copy of which is sent to the Internal Revenu Service. The W-2G reports the amount of the jackpot, the amount of federal tax withheld (which, believe it or not, is optional for winnings below $5,000) and, in the case of states with income tax, the amount of state tax withheld (which is not optional).
Once the government receives that W-2G, you are now in the system. And if that jackpot came near the end of the year, you'll be wishing you had kept an accurate record of your losses all year long. It's a must to have a descriptive gambling diary with entries recorded on a daily basis in your own handwriting. I use a six-column journal with room for date, casino, type of machine played, the number of the machine, hours played and amount won or lost.
Then, after all that, the IRS still wants some sort of corroborative backup, like the casino's computer printout of coin in and coin out for your play. That's another reason you always want to have your player's club inserted into the card reader.
Of course, if you play only at machines whose jackpots never reach $1,200, you may think you're in the clear. No need to report anything? I wouldn't bet on it. The law says you must report all your winnings. Do it. Life is too short to always have to be looking over your
shoulder, worrying about the IRS.
So far, we've discussed only machine play. There's still the matter of table games. If you win a high-odds table bet of at least $600, a W2-G is issued when the proceeds are more than 300 times the amount wagered. This could easily apply to some Let It Ride and Caribbean Stud winnings.
So, where do you enter all this information on your tax return? The winnings go on the front of 1040 under “Other income.” The amount of federal income tax withheld goes on the back under “Federal income tax withheld from Forms W-2 and 1099.”
Gambling losses are deducted on Schedule A under “Other Miscellaneous Deductions,” but only up to the amount of winnings. If your losses exceed your winnings, you're out of luck, and excessive losses cannot be carried forward to the next year.
State income taxes withheld are entered on Line 5 of Schedule A, “State and local income taxes.”
If you don't itemize your deductions, you're also out of luck.
Plus winnings reported on Form 1099 cannot be offset by losses. A Form 1099 is triggered, for example, when you win a no-entry-fee slot tournament prize of $600 or more.
All this, and I haven't even touched on the necessity of estimated tax payments or the 2002 changes in the State of Mississippi's income tax withholding.
Sound complicated? It is. That's why I urge everyone to consult with a tax preparer with expertise on gambling income.
Until next week, aces and faces to you.
Linda Mabry lives on the Coast and may be contacted through her e-mail address, lnmabry@cableone.net.
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