Did you have a good day at the casino? Before you plan how to spend all your winnings on making your dreams come true, consider keeping a share for the IRS too. Casino winnings are considered to be taxable income at a federal level and you are thus required to report this income on your yearly tax returns.

There are also different state taxes that are applicable to casino winnings. It is hence recommended to keep an eye on the state law regarding such income. One good thing about the taxes on your casino winnings is that they are not progressive and hence the percentage remains the same.

Also, the losses that you incur during your time at the casino may also be eligible for reporting and can be used to offset some of the gains. However, there are a few exceptions that apply to the tax on casino winnings.

Requirements of Reporting

Whether you have cash winnings or non-cash ones, you are expected to report them on the tax forms. However, if the cash or the items that you have won come out to be worth the following, there are strict reporting requirements.

• Equal to or more than $1200 from a slot machine or a bingo game.
• Equal to or more than $1500 from keno.
• Equal to or more than $5000 from a tournament of poker.

You will receive Form W2-G if your winnings fall into one of these categories. For winnings that are less than any of these thresholds, you might not need to fill a Form W2-G but you will be required by law to report the income on your tax returns.

As mentioned earlier, the good news is that such a tax is not progressive and thus you are required to pay a fixed percentage on any amount that you earn through casino winnings. All casino winnings are subject to a tax of 25%. Items are taxed on the basis of the fair market value that they hold.

So, the take away is, even if you manage to earn $2 from your trip to the casino, you are required by law to report this income when filing your taxes.

How to Report Losses

Any losses that you incur during your time at the casino can also be reported to offset the gains. However, in the case of casino winnings or losses, you are not required to give a net amount on the tax form.

Rather, both of these amounts are mentioned separately. There is a limit to the amount of losses that you can report. The limit is up to the amount of the winnings. It is important to itemize your deductions on Form 1040, Schedule A. It will be reported in the section of ‘Other Income’.

Record Keeping Requirements

You need to make sure that you keep all of the documents related to the wins and losses that you make. Receipts, tickets, slips, and statements along with the required Forms such as W2-G and 5754 might be required to prove the winnings or losses. Without having adequate proof, you might not be eligible for loss deductions. Some people like to maintain a gambling log which states all the details about what they have made so far. In such a log you should provide the following details:

• Type of activity
• Date
• Name of the place and the address
• Names of any other people around you at that time
• The total amount of winnings or losses

By having all of these documents stored, you will be able to minimize your casino winning tax liabilities by bringing forward the losses. Any nonresidents that take part in gambling activities are also required to report these winnings on Form 1040NR. The tax rate in such a case is 30% and the losses cannot be accounted for generally in such situations. However, for Canadian residents, there is an exception under which they are allowed to report the losses and use them to offset any winnings that they have made.

Bottom Line

All of these rules adhere to those individuals that take part in gambling activities as a source of leisure. For professional gamblers, the cost of doing business is also taken into account and there are further deductions that take place. So, before you plan your trip to Vegas make sure you are aware of how and when to file all your winnings on your tax forms.

Written by Tax Professionals