Some 15 million people will watch California Chrome June 7th, many pulling for California Chrome. A Triple Crown Winner would be great, especially out of a kind of rags to riches story like this one. And that probably means a lot of those people will be betting big, which means both winners and losers. See At the Belmont Stakes, California Chrome Creates Gambling History: A Sure Thing Bet.
Winnings can be big for owners, trainers, jockeys and many others connected with the sport. And the gambling take is another matter entirely. It’s traditional to place a bet and the winnings can pay off handsomely. Plus, U.S. law still allows legal online betting and some of the rewards are grand.
But whoever wins, there will be some nice payoffs. But remember to save some for the tax man. Gambling winnings are fully taxable and must be reported. Yup, gambling winnings are always taxable income.
What’s included? Gambling income includes winnings from lotteries, raffles, horse and dog races and casinos. What’s more, if you win in kind, you’ll have to pay tax on the fair market value of prizes such as cars, houses, trips or other noncash prizes. You name it, it’s taxed. Here are six tax rules about gambling winnings:
1. Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G, a special form for reporting certain gambling winnings. They may even withhold federal income taxes from the payment. But even if they don’t, you still have to report and pay tax. For information on withholding on gambling winnings, refer to IRS Publication 505, Tax Withholding and Estimated Tax.
2. The full amount of your gambling winnings for the year must be reported on line 21 of IRS Form 1040. You like the simpler form? Too bad. You can’t use Form 1040A or Form 1040EZ. But don’t wait until tax return time. In some cases you may be required to pay an estimated tax on your gambling winnings.
4. You can’t deduct gambling losses that are more than your winnings.
5. It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.
6. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses. Sadly, this is why most people are not able to claim their losses. See IRS Publication 529, Miscellaneous Deductions.
Bottom Line? Keep Good Records. Recreational gamblers need to keep a diary or other contemporaneous record of how much they bet and lose on each visit. That’s because your occasional big win will be reported to the IRS by the casino. You can use gambling losses to offset your winnings. But if you don’t keep good records you could end up a two-time loser—losing once at the tables and once to Uncle Sam.
You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
via The Tax Lawyer http://ift.tt/1nY6IoU