Tax Casino Winnings Usa
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Add a top rate of 37% for federal taxes, and you could end up paying close to half of your winnings in taxes. This is also usually the case for game show winnings. The difference with the lottery.
- You will have to pay state income tax on your winnings in 39 states. If you live in one of the 11 states that don’t tax sweepstakes prizes, you may be spared state income taxes. Alaska, Florida.
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Online poker taxes in the United States
Many players may think that they can get away with not paying taxes on winnings because it was not won in a traditional casino. This could not further from the truth. Just as the technology for online poker has advanced over the years, so has the technology that helps the US Government monitor banking transactions. This is not just true for money that you deposit into a bank account. It goes well beyond that.
While depositing a check or receiving a wire from an online poker room may draw some scrutiny from the IRS, the government has other ways of tracking your online poker winnings down too.
The Neteller bust in 2007 was the first time it became obvious to online gamblers that the US Government could monitor their transactions. Many players thought that the IRS would never gain access to this information. They were proven wrong. Many players were forced to scramble to pay taxes on their winnings before they got a dreaded tax bill. Many players learned a lesson here, while others did not.
Neteller was just one of many US facing ewallets to fall. The government seized UseMyWallet, QuickTender, eCheckUS, eWalletXpress, PrePaidATM and many fly by night processors that processed US online gambling payments. The Department of Justice even created a bogus processor called Linwood Payment Solutions and received countless information about player payments that passed through their processing center. This gave the feds unlimited access to online poker player’s transactions that were once thought to go under the radar.
Ewallets were not the only companies handing over their player records to the US Government. Busted online poker rooms and other online gambling companies were doing the same thing. PokerStars, Full Tilt Poker, Absolute Poker and Ultimate Bet are just a few of the names that were forced to turn over player records to federal authorities. The lesson learned here is that there is always a chance that the information that you thought was private can fall into the hands of the IRS.
Brick and mortar poker taxes
Brick and mortar wins are a bit it easier to hide, but there is still an obligation to report your winnings. Each cash game session must be logged. The IRS does not define what a session is. Keeping a daily journal of wins and losses should suffice. Tournament players should log each tournament entry. A poker room will be happy to give you a receipt for any tournament entry upon request. Large tournaments will automatically provide one.
A casino will issue a W2G any time that a player nets $5,000 or more in a brick and mortar tournament. A W2G is a tax form that will be submitted to the IRS with the player’s Social Security Number and other personal information. Players can refuse to provide this information. If they do, the casino is required to automatically withhold taxes on the win.
Brick and mortar players should also be aware that a casino is obligated to create a Currency Transaction Report any time a player crosses more than $10,000 through the casino cage in a 24 hour period. Poker players should also know that the casino may report any transaction that they consider to be suspicious as this is required by federal law.
Should you file as professional or recreational gambler?
There are two ways to declare poker winnings. One way is to enter the income under miscellaneous income. This is what most players will do. A player that files as a recreational player will pay their standard tax rate on this money, but will not have to pay Social Security or Medicare taxes on these winning. Most players that have full time jobs will file this way.
Players that have demonstrated a pattern of winning can claim their winnings as a professional gambler, regardless of whether the player has a full time job or not. A pattern of winning is not defined by the IRS, but many believe it means the player has gambling wins in two of the last three or three of the last five years. This is where it gets complicated, as this type of filing requires a Schedule C tax form. This is the same tax form used by self-employed business owners. There are many advantages to filing this way and one large drawback.
The drawback is that a player that files as a professional player must pay the self-employment tax on that money. When someone has a standard job they pay 6.2% of their income for Social Security and their employer matches this. This means that since you are filing as self-employed, you pay both sides of this tax because there is no employer to pay the other half. The percentage for the employee side was 4.2% in 2012, but it went back up to the traditional level of 6.2% for the 2013 tax year. There is also a 2.9% Medicare tax. This means that you will pay 15.3% in taxes placing poker income under a Schedule C, where adding it on a 1040 as Other Income will not trigger this tax. The total percentage in 2012 was 13.3% due to the Social Security tax reduction during the recession. Schedule C filers will be able to deduct 6.2% of the tax as a business expense. This adds some tax relief.
Professional poker player tax deductions
The good news is that professional players that file a Schedule C may deduct all expenses that are related to their poker business. Travel expenses tend to be the largest for professional poker players. The mileage expense for 2012 was 55.5 cents per mile. That number will be 56.5 cents in 2013. This includes miles driven to and from any casino or other gambling establishment in your personal vehicle as long as your intention was to win money. Players that think they may file this way should keep a log of how many miles that are driven to and from any poker game, even if the game was not in a traditional casino. You will need this information to decide which way to file at the end of the year.
Other travel expenses may be deducted as well. This includes airfare, hotel and rental car expenses when you take a trip where your primary purpose is to win money playing poker or some other gambling game that requires skill.
Online poker players may also have other expenses related to their work. Computers are deductible as a business expense. If you bought a computer with the sole purpose of using it for your poker business, then it qualifies as a tax deduction. So does that monitor setup needed to 24-table.
There are also some expenses that get overlooked. Your internet connection may be deductible up to the percentage of its use that is used for online poker. If you bought a computer desk, chair, floor mat or anything else office related, then that is deductible too.
You can even take the home office exemption, although this may start to push the limit. A business owner can deduct a percentage of their rent that is based on the percentage of their apartment or home devoted entirely to their business. This can be risky though. First, this has been known to send a red flag to the IRS. Second, people that do not rent may find problems down the road when they sell their home. It may create a taxable event when the home is sold if the home is considered to be a primary residence.
State income taxes
Many states tax gambling winnings. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming have no state income tax. Players in other states should expect to pay taxes to their state beyond what is paid to the IRS.
How should a poker player tax plan?
If a player has a net cash win of $5,000 in a poker tournament in a brick and mortar casino they will receive a W2G. A player will also receive a W2G for a $1,200 gross slot win. A player has the option of having an amount withheld from their win of up to 39.6% to cover taxes in 2013. If you are the type of player that has bankroll management problems, then having the casino withhold a percentage of your win is probably a good idea. This will prevent a nasty surprise when tax time comes in 2014. There is nothing worse than owing the government money that you do not have. Do not let yourself get into that situation.
One exception to asking for a tax withholding is if you are a net losing or break even player. Even then, there is still a disadvantage to receiving a W2G.
A player can write off their gambling losses up to the amount that they won. Gambling losses are an itemized deduction though. A player that typically takes the standard deduction will not be able to write off all of their losses. Most people that do not have a home mortgage interest deduction or donate a lot of money to charity will take the standard deduction. The standard deduction for 2013 is $6,100 for single filers and $12,200 for married couples filing jointly. If you do not itemized deductions normally then you will end up getting taxed on the applicable amount, even after itemizing gambling losses, because you could already deduct the standard deduction amount.
Tax planning for 2013
It is too late to plan for 2012, but it is not too late to plan for 2013. There are several phone apps that track sessions. These include Poker Journal and Poker Income Pro. Keeping an old fashioned paper notebook with poker sessions works too, especially for people that are prone to losing phones. Make sure to back up sessions entered into the app in case your phone should break or get lost. These apps may be used for online and brick and mortar poker sessions.
Poker players should also keep a mileage log for their car. A trip requiring long distance transportation should also be tracked. It may seem like a waste now, but it will not be if a big tournament win should come later in the year. You will then be prepared to demonstrate the expenses incurred to get you to that big win.
Disclaimer
This article is meant as an informational tool to help poker players. This article does not take the place of professional tax help. There are many tax attorneys that handle gambling winnings, especially in Las Vegas. Consult one of these tax specialists before filing your taxes if you have gambling winnings to make sure that your deductions are proper and you are filing your taxes correctly.
Image credit: Mark Van Scyoc / Shutterstock.com
Are online gambling winnings taxable? Yes, whether you gamble at land-based or online casinos, the money you earn is subject to federal income tax. Known as gambling income, the money you earn from wagers and bets as well as lotteries, sweepstakes, etc. all must be taxed.
In some cases, you will be provided with tax forms that must be turned in to the federal government. The full amount of the gambling income minus the cost of the winning bet will be included on this form. Whether you receive this form or not, it’s important to know your responsibilities when it comes to filing income taxes.
The process of handling gambling taxes is not difficult if you know what to do. With this in mind, the OUSC team created this quicktax guide to help US players report their online gambling income.
Do US Players Have To Pay Taxes For Online Gambling?
So, if you enjoy online gambling at sites like BetOnline or Bovada Casino, do you have to pay taxes? When you choose to gamble online, the money you earn is still taxable. Even if the site is located in another country, you still have to pay taxes.
Online gambling is unregulated in most regions of the US, but taxes must still be paid. Just because you do not receive tax forms, does not mean that your winnings are not taxed.
To the IRS, it does not matter where the money is either. If you have funds in your online casino account, even if it’s an offshore site, it’s taxable. When dealing with online gambling earnings, it’s important to review this information with an accountant to ensure you pay the right amount of taxes owed.
Below you will find a list of gambling activities that the International Revenue Service considers taxable:
- Prizes
- Private Party Games
- Tournaments
- Scratch Off Tickets
- Other
How Do You Report Gambling Winnings?
The way you report your gambling activities will be dependent on how you win. If you receive a Form W-2G, then this is what you will turn in when filing taxes. Taxes must be filed before April 15th or you must ask for an extension. You will turn this form in as you do your other tax forms for employment to an accountant or tax filing company.
Tax Casino Winnings Usa 2020
If you do not receive the W-2G form, then you will need to fill out a Form 1040, adding the winnings to Line 21 of the form. The full amount of gambling winnings will be placed on this line.
When filling out the 1040, you will need to configure your losses as well. The expense you had for bets, wagers, etc. will need to be deducted as an itemized deduction. This is done on the “Other Miscellaneous Deductions” line of Schedule A form. This will help to lower the tax amount paid on your total gambling income.
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What Types of Records Do You Need?
The information you record while enjoying online gambling can be used during the filing process. It’s important to maintain a log or diary of all your losses and winnings. Keep in mind the following information:
- Dates: You will need to record the date and type of activity completed, including wagers and winnings.
- Location: List the name and location of the gambling facility. In the case of online gambling, this would be the website, such as MyBookie or Café Casino.
- Checks: If you are sent any checks in the mail from winnings, be sure to keep the check stub.
- Paperwork: For some players, winnings will be sent via mail and any paperwork should be kept and used during filing as needed.
Don’t Forget To Pay Your Online Gambling Taxes
Tax Casino Winnings Us
When you gamble online, it is important to enjoy yourself, but also remember to file your winnings! The IRS takes gambling money very seriously and you want to be sure that you pay your taxes accordingly. If you need any additional information, be sure to visit the official website of the IRS to find all the previously mentioned forms you will need fo file your taxes.