Do you need to pay taxes on your gambling winnings?
According to the IRS, if you gamble or bet on sports ensure to include the details in your tax information. A successful gamble is exhilarating, but that can't be said for tax charges on it. As inconvenient as the tax part of gambling winnings or bet gains can be, the tax charges are mandatory.
So, the question again, "Do I have to pay taxes on gambling and sports winnings?" Yes, is the simple answer. More importantly, taxes on gambling and sports betting must be filed correctly to avoid penalties.
What tax is due on gambling winnings?
A win equivalent to 300 times a wager or amounts to $600 is subject to tax. The IRS receives a copy of the W-2G for winnings categorized as taxable. The source of the win is negligible, you can win online or at a physical establishment yet you must pay tax since it's an income. Even earnings still in an online wallet are taxable.
A tax charge of 24% is due on all gambling earnings. This may be more depending on the state of the winner. Additional tax from the state law will add to what is already paid as federal tax. By default, sportsbooks often automatically deduct the 24% tax charge from the source. However, based on the tax bracket of an individual, there may be a need to pay more or receive a tax refund. Irrespective of the amount won, or if the W-2G is received or not, the winning must be reported on the tax returns and must be done accurately.
On the 1040 form, gambling wins can be recorded as other income. All records should be kept accurately, using the suggestion from IRS, keeping a daily record of gambling activities helps to note every important thing. All gains and losses will be readily available should the need to take deductions suffice. A proper record includes all the W-2G forms for the tax year.
State Tax on Gambling Income
Many bettors wonder if state tax matters after paying the federal tax. Well, this depends on each state. Some few states don't charge income tax and this exempts a bettor from additional charges. Examples of such states are Dakota, Nevada, and Washington among a few others. Few others specifically exempt gambling winnings from tax. The tax rate is also not uniform, each state charges differently, so a bettor must do well to find out the tax charge for their state.
Taxes for Professional Gamblers
Beyond a casual hobby, many bet as professionals. It's their secular job. Come tax time, they are recognized as a business( self-employed) and must report expenses and income related to gambling on the IRS Schedule C Profit or Loss. Professional gamblers like other businesses can enjoy itemized deductions on activities about gambling activities such as non-wagering expenses. However, they can not deduct losses beyond their winnings. For example, a professional who wins $6,000 and has a loss of $9,000 can not deduct beyond the amount won. While regular bettors may itemize a loss, professionals use schedule C.
Keeping Records of Gambling Wins
As a professional or regular bettor, a proper record of all gambling activities is important to avoid mix up that could lead to penalties. While sportsbooks will send the W-2G form for every substantial win, a personal note is not out of place.
Taxes on Fantasy Sports Betting
Although slightly different from other forms of common betting, a 1099-MISC is still issued for fantasy sports. For the sake of tax payments, the IRS has decided to apply tax laws on betting to fantasy sports.
So, once again tax must be paid on gambling and sports winnings both for professionals and regular bettors.
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