For some people, it is unknown that prizes, awards, and gambling winnings are required to be recorded on your tax return. If the winnings are a small amount they are still required to be reported on your taxes. There is no way to avoid paying taxes on gambling winnings.
How are prizes, awards, and gambling winnings taxed?
Prizes, awards, and gambling winnings are taxable for both federal and state tax returns. The winnings you receive are included in your taxable income, so the amount of taxes you pay depends on the tax bracket that you are in. One thing that helps is to keep a record of your winnings and the amount of money you spent as this can be taken against the amount of winnings that are taxable, reducing your overall tax bill. However, losses are only deducted against winnings if you itemize your deductions. Also, you can only claim losses up to the extent of your winnings. Almost all winnings that you receive are taxable whether it is a cash prize, noncash prize, or fantasy sports and pooled winnings.
Is there a tax form associated with winnings?
When you receive winnings from a casino or a similar formal institution, you will usually be issued a Form W-2G which has the amount of winnings received. Also included on Form W-2G is the date that you won, and the type of wager that was placed. Most Form W-2G’s are sent if you have horse race winnings of $600 or more, bingo or slot machine winnings that exceed $1,200 or more, keno winnings that are $1,500 or more (less the wager), and poker tournament winnings that exceed $5,000.
Are there withholdings?
When you receive a Form W-2G there are two types of withholdings. The first is a regular withholding of 24% on cash payments when the winnings minus the wager are more than $5,000, or 33.33% for noncash winnings like a car. The second is backup withholdings which are 24% of the payment on bingo, keno, slot machines, and poker tournaments. Backup withholdings can also occur if you did not provide the payer with your Social Security number.
Are gambling losses tax deductible?
Gambling losses are tax deductible, but only to the extent of the winnings you received and can only be deducted if you itemize your deductions on your tax return. If your losses are more than your winnings, you are only able to deduct up to the amount of your winnings and you would not be able to write off or carry forward the excess. In addition, adequate records must be kept to support gambling loss deductions. An example of adequate records would be a log or diary of gambling activities noting date, name and location of the gambling establishment, type of gambling and a record of winnings and losses. Also, save copies of unredeemed lottery tickets or other proof of gambling losses.