Tax Tips: Do I have to report my gambling income?
Filed under: Tax
This question comes up a lot as people find themselves regularly participating in the social ill of gambling. Most people lose far more than they win. That's why gambling is so stupid. But what if you "get lucky" and win a chunk of money. Do you have to report it? What if you've lost far more than you've won? Then do you have to report it?The rules surrounding gambling are simple. Any money you win (from lotteries, raffles, horse racing, casinos, etc.) is taxable. The same goes for any prizes you win, such as cars, electronics, trips, or real estate. You may get a form W-2G to document your winnings, but even if you don't get one, you're responsible for reporting the gambling income.
Your gambling income goes on line 21 of Form 1040. Any gambling losses that you have documented can go on Schedule A of Form 1040. However, you can't deduct more than your gambling winnings. You have to keep accurate records of your winnings and losses. Most people don't seem to do that, but it's what the law requires. Be careful: This is a much-abused part of the tax code because most gamblers don't have records that support their deductions. Don't set yourself up to be audited.
More information can be found on gambling winnings and losses on the IRS website.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
Reader Comments (Page 1 of 2)
2-26-2008 @ 12:17PM
Words Within said...
I have been reading WalletPop for a goodly amount of time and can say that I dislike Tracy's posts most of all. Less opinions ("social ill of gambling") and more fact would be appropriate, unless these posts are to be taken as sheer opinion and not factual.
Thank you
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2-26-2008 @ 12:23PM
Tracy Coenen said...
Well, actually, the posts we do here quite often contain both opinion and fact. My opinion on gambling doesn't change the fact that the facts about IRS reporting of gambling winnings/losses are correct here. Thanks for your input. :)
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2-27-2008 @ 10:57AM
DanGarion said...
But most gamblers would have stopped reading this article after you called it a "social ill" and "stupid". Why even write the article if you are going to call it and therefore the people that do it "stupid"...?
2-27-2008 @ 10:59AM
Tracy Coenen said...
I write the article to inform those participating in the stupid activities of what the tax laws say.
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2-27-2008 @ 7:58PM
Ryan said...
The only comments you received so far critisized you for calling gambling a "social ill" and "stupid".
And frankly they are right, you are wrong. I gamble every single day, and I am a net winner (poker, advantage playing, ect). So in my case gambling is smart.
Some people also gamble for pure entertainment, is that stupid? Would you call the same person stupid for spending money to go to Disney World? Afterall they are sure to lose money going to Disney World, they may or may not lose money gambling.
People who gamble excessively may have a "social ill" prehaps, but that is a far cry from gambling itself being a social ill. Many people gamble for a living and are quite rich as a result (Daniel Negreanu, Phil Hellmuth) , are they stupid or socially ill?
Also the comment about why even write this article is accurate too. You are basically saying: "Ok all you stupid people who engage in a social ill, here's how you report your winnings to the IRS." You offended your audience before you ever get to any practical advice.
The practical advice you give at the end is only of marginal use as it is a widely known piece of information. The personal opinions you present are completely false and represented a jaded view of an activity which millions of Americans and people around the world engage in on a daily basis.
It is obvious and aparant you have never won anything "gambling" and have developed a jaded view. "Mindless gambling" may be bad, but just because that is the only gambling you know does not mean your opinions are correct.
In summary, gambling is not "stupid" if done intelligently, nor is it a "social ill" if done responsibally. If you can do neither that is your problem, and is not the fault of "gambling".
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2-28-2008 @ 11:54PM
DanGarion said...
I don't gamble, but I really hate it when people try to push their moral standards as the only smart right ones.
She needs to take some social responsibility that if she is trying to assist people she doesn't alienate those she wants to assist. If Tracy thinks something is stupid or that it is a social ill, then she should leave her opinions out of it. If she was my CPA and I heard words like that coming out of her mouth I would be walking out of her office and would never recommend her to my friends. It's not your job to have an opinion unless I ask for it, when it's my money.
You want to know what a stupid activity is? Buying a house that's $600,000 when your household income is only $80,000. And then expecting everyone else to bail you out. Talk about social ill and stupid.
2-27-2008 @ 8:15PM
Ryan said...
Also this article only applies to US Citizens. Canadian citizens and citizens of many European countries are not taxed on their gambling winnings (if not done "professionally" - ie: Lotto winnings are not taxable). So it may be more "stupid" for US citizens to gamble than citizens of other countries due simply to tax laws.
This article focused more on your incorrect opinion of gambling than the simple facts, which is why it was a poor article.
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2-28-2008 @ 3:28AM
Ryan said...
Foreign citizens winning $ in the USA will incur a tax liablity from the IRS.
A US citizen winning the lotto in Canada would incur a tax liability in the US but not in Canada (as US Citizens are taxed on their worldwide income based on thier citizenship).
A Canadian citizen winning the lotto in the US would incur a tax liability in the US, but not Canada.
A Canadian citizen winning the lotto in Canada would likely not incur any tax liability.
2-28-2008 @ 11:57PM
Tracy Coenen said...
You people crack me up. I am allowed to give my opinion if I choose to on this blog. I don't care if those who need the tax information are turned off by that opinion. I'm giving it anyway (obviously).
Thankfully, Dan, I wouldn't allow you to be my client anyway. And for the rocket scientist who pointed out that my advice was for the U.S.... uh... yeah... Every single one of my tax posts is about the U.S., and the clue to that is the fact that I mention the IRS in every post.
*sigh*
You can like gambling all you want. That doesn't change the fact that it's stupid and a social ill.
Thanks for your interest in my posts!
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2-29-2008 @ 12:29AM
ryan said...
"IRS" as in the UK's "Inland Revenue Service" or "IRS" as in "Internal Revenue Service"?
As for gambling being stupid, casinos gamble 24 hours a day 7 days a week, are they stupid? If not why not?
If I can play a game and it has 105% payback, am I stupid for playing that game? Or would I be stupid for not playing it?
Is spending $50 in a casino more stupid than spending $75 on another form of entertainment?
Will you *please* stop blaming an activity for somone elses personal problems? If someone is an alcoholic it is not the fault of alcohol, if someone has a gambling problem it is not the fault of gambling.
You do not help anybody one bit by saying "gambling is a social ill". It is not. Someone with a gambling problem has a "social ill" but that is their personal problem, they need to take responsibility for their own actions, making excuses for them by blaming "gambling" does not help, it is like blaming "alcohol" for someone's drinking problem, irresponsible.
Gambling with a disadvantage may be "stupid" and gambling money you can't afford to lose may be indicitave of a "social ill" the individual has, but you used far too broad a brush.
Do you think having insurance (gambling) is stupid or socially ill?
Do you think investing in the stock market (gambling) is stupid or socially ill?
Do you think starting your own business (gambling) is stupid or socially ill?
Are parents who take thier kids to Chuckie Cheese's (aka Showbiz Pizza) stupid or socially ill? Afterall most of their games are gambling (there are "Chuckie Cheese" exceptions in most state gambling laws).
2-29-2008 @ 12:39AM
Tracy Coenen said...
Nice try, Ryan. I didn't blame anyone's problems on the activity. I just said the activity is stupid and a social ill. That's all.
And here's a newsflash for you: The casino isn't gambling. You are.
And... insurance isn't gambling. The stock market isn't gambling. Starting a business isn't gambling. Must I get you a dictionary so that you can be made aware of what gambling actually is, particularly as is presented in this post?
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2-29-2008 @ 2:55AM
ryan said...
"And here's a newsflash for you: The casino isn't gambling. You are."
Tell me why that is.
The casino takes bets all day and all night, they have a chance of someone walking in and taking money from them, how is it not gambling? (Because they have an advantage? It is still "gambling" but in their case not "stupid" right?)
You didn't answer my question about playing a 105% payback game, and if that would be "stupid". Or would it be intelligently playing the odds like the casino does 24/7?
--
Insurance is gambling.
Can you tell me why insurance companies are mentioned in every state's gambling laws as being exempted? Because insurance is gambling (that something bad will happen to you).
If you disagree, name one single state which does not mention insurance in their gambling laws. (You can't because every state mentions insurance in their gambling laws -- because it is gambling).
So is buying insurance a "stupid social ill"?
Buying stocks is gambling.
Just ask anyone who invested in Enron if they think the stock market is gambling.
Chuck E Cheese's is gambling.
Geared toward children. Tell everyone how they are stupid for letting their kids play ski-ball to win tickets to exchange for worthless toys (end up paying $20 for a plastic whistle).
---
Example of "insurance" exemption in state gambling law (Alabama), exempts "contracts of indemnity or guaranty and life, health or accident insurance":
"(4) GAMBLING. A person engages in gambling if he stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence, upon an agreement or understanding that he or someone else will receive something of value in the event of a certain outcome. Gambling does not include bona fide business transactions valid under the law of contracts, including but not limited to contracts for the purchase or sale at a future date of securities or commodities, and agreements to compensate for loss caused by the happening of chance, including but not limited to contracts of indemnity or guaranty and life, health or accident insurance."
Insurance is gambling, plain and simple, but according to you it would be stupid and socially ill to purchase insurance.
2-29-2008 @ 1:58PM
Tracy Coenen said...
Oh my Ryan, please don't continue to state such foolish things. Insurance is not gambling, and the fact that it is mentioned in a law regarding gambling doesn't make it gambling.
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9-24-2008 @ 7:27PM
Bobby Freeman said...
In general Women don't like to take gambles as often as men. Maybe this is why there are so few women business owners. Close minded Tracy appears like she is against gambling with nothing to back up her negative comments. From her picture she is obviously very square and looks uptight. Calm down lady, I know you are getting old and Menopause is in affect, but it will be okay.
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12-31-2008 @ 11:10PM
sarah said...
Does this mean that the guys who win big cash prizes at the wsop have to pay huge taxes on it? i know it was proven that it is a game of skill and not so much gambling so is it the same tax bracket as professional golf winnings for example?
free bet
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12-31-2008 @ 9:39PM
niall said...
does this mean that the guys who win big at the world series of poker have to pay tax on their winnings? hasnt poker been proven to be a skill game rather than gambling? wouldnt it then be put in the same tax bracket as professional golf winnings for example?
free bet
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1-03-2009 @ 11:05PM
paul dakramanji said...
I Don't Know why Mr Ryan, Is desperately trying to defend gambling. comparing gambling to Disneyland, or opening new business,is not substantial enough.
Get Over It! gambling Is Stupid! and Socially ill.
Do you Know? how many families and homes have been destroyed by a gambler. I know, I have a cousin that is a gambler who ended up destroying his whole life.
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7-23-2009 @ 4:41PM
Mark said...
If I go to Las Vegas and spend $60 on a show you would not consider that stupid or a social ill but if I go to Las Vegas and spend $60 gambling and having a good time with my friends that is a social ill?
If I take $100 and put it all on black that is stupid (47.3% chance of winning) but if I take $100 and invest it in a new business that is not (44% chance the business survives 4 years)?
If someone is a better poker player than me and I sit down to play against them we are both gambling. They have an advantage but there is certainly the chance I will win in the short term and walk away from the table before they manage to recoup their losses. On the other hand, if I sit down at a blackjack table somehow only I am gambling? Even though the house only has a 0.44% advantage over me playing perfect basic strategy and there is certainly the risk that I will win in the short term and walk away from the table before they manage to recoup their losses.
You offered to get a dictionary to set people right on what gambling is. Somehow a dictionary is valid but the tax code is not?
Gambling is stupid and a social ill because there are many people who have ruined their lives with it. Alcohol has also ruined many lives. On the other hand, millions of people use alcohol responsibly in order to have a good time. At the same time millions of people gamble responsibly to have a good time.
I certainly wouldn't say gambling is right for everyone but to say it's stupid and a social ill seems like you have certain pre-conceived ideas that you apply to gambling but you have not thought them out completely. Gambling can be a fun activity that you enjoy. You expect to spend money doing it just like you would any other fun activity. You might pay to go bungee jumping for the rush. You might also pay to put money on the roll of a dice for the rush. I don't see how there's anything wrong with that.
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7-23-2009 @ 5:29PM
Daniel C said...
Paul, what you fail to realise is that you are just as close minded as the blogger herself.
Yes, SOME people gamble their lives away, but that does not mean that anyone who gambles will destroy lives.
If an accountant goes and shoots 10 people in a restaurant, does that mean every accountant is a murderer?
Just because some people get out of hand and cant control themselves, doesnt mean that every form of gambling is bad. Any poker professional can tell you that with the right financial management, you can consistently profit at poker as it is a game is skill.
Anyone who has ever taken a course of probability will agree.
If someone plays roulette or any other type of casino gambling where you are playing against the casino and not against other players they will be gambling and they will lose in the long term, unlike poker (if they are good obviously). But that does not mean they will destroy lives.
Just about everyone has gambled in their lives, yet there are only a few hundred people who have gone too far with it.
Dont be a prejudice.
The only social ill I can think of is being a stubborn narrow-minded girl who peddles their preconceived notions of morality to others without any real facts.
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7-24-2009 @ 3:28PM
Max Weiss said...
Tracey you have been totally unreasonable. Dan and Ryan's first comments were entirely reasonable posts about some of the goods that could come from gambling and how it has helped them, and that you clearly are biased about it and thus alienate many readers who could clearly benefit from the advice. Your reply Tracy was "You people crack me up. [...] I wouldn't allow you to be my client anyway." That's an entirely disproportionate and unreasonable response.
To put it bluntly, don't be such a witch.
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