Surprisingly, many people are unaware they must report their gambling winnings because Uncle Sam expects a cut. Gambling has been thriving recently, especially due to the rise of online gambling opportunities due to pandemic restrictions.

Knowing the rules around paying taxes on your gambling winnings is crucial since you do not want to be in a position where you spend all your jackpot earnings only to realize you are expected to pay taxes. Let’s explore some tax tips for gambling winnings and losses.

Tip #1 - Report Your Winnings

Although it’s unlikely that the IRS will hunt you down for small gambling winnings, you should know that you are expected, by law, to report all of your winnings as a secondary income. For example, you may win $5 or $500 from any game, website, or casino. You cannot hide it or consider all of it your own, meaning it must be reported on your tax return.

It is also common for people to win non-cash prizes, such as cars or other material possessions, whose fair market value must also be reported. Although you would probably get away with hiding small-time winnings, you don’t want to avoid paying taxes, which is a serious crime.

Tip #2 – Consider Withholding Rules

People who win large sums of money through gambling must withhold a certain percentage of their winnings. For example, the IRS has made a rule stating that if you earn 300 times or more on your initial bet, you must withhold 24% of the money for tax purposes.

Games like bingo and keno have different withholding rules, which must be considered to avoid misrepresenting your winnings. You’ll have to consider the W-2G form and read all the information before signing the document, ensuring you know what is expected from your gambling winnings.

Tip #3 – Keep Gambling Winnings and Losses Separate

One of the misconceptions many people have is that gambling winnings and losses can be considered together. For example, if you put five $200 bets on five different horses in a race and you win $1,500 on one bet, you cannot simply deduct the sum you lost from your total winnings.

You cannot subtract your losses ($800) from your winnings ($1,500) to report on your tax return. If you choose to itemize, you may be able to claim a deduction for the money you lost. In all cases, you should handle your gambling wins and losses separately to avoid confusion and legal action.

Many people are unaware that gambling winnings are subject to tax rules. So, it is disappointing to discover that they do not keep everything they win.

Gambling is incredibly popular in America and various parts of the world, but everything you win must be reported on your tax return as a secondary income. People are not entitled to keep everything they earn and cannot deduct their losses from their total winnings. Although this is a bummer, these rules have been around for a long time.