Having more than 200 Native American casinos, several lottery, and scratchers options and with one of the gaming capitol Las Vegas only four hours away, California is a gambler’s haven.
So if a risk-taker beats the odds and hits the jackpot, do they have to pay taxes on the money?
“Whether it’s big or small, legal or illegal, live or remote, income from betting is fully taxable,” said Stacy Leong, a senior tax analyst with H&R Block.
Leong said, the larger the prize, the more likely the winner—and the IRS—will receive a tax form like a 1099-MISC or W2-G reporting the prize showing the amount you won, and the amount you owe. The IRS will be able to compare the information on the taxpayer’s return with the tax form from the casino. Failure to report the prize as income, is the surest way to get audited.
Winners should be prepared to fork over 24 percent if the amount is more $5,000, said Leong.
Just because a taxpayer doesn’t receive a tax form does not make the winnings tax-free. Taxpayers still have a responsibility to report their prize on their tax return as “other income.” And non-cash prizes don’t escape the IRS’ interest, either. If it is a trip or just a coffee maker or gift card, winners should include the fair market value of any non-cash prizes in their taxable income.
But gamblers are allowed to deduct their losses too, but only by as much as they report in winnings. For example, if a taxpayer entered two pools at $10 each and won $100 from one, they could net the entry fee from the winning pool against the income, reporting $90 in winnings. The full amount of winnings and losses must be reported, and records should reflect all amounts. For taxpayers who itemize, the entry fee from the losing pool and any other gambling losses would be taken as an itemized deduction, up to a maximum of $90.
Taxes are due on April 15. For more information, visit www.irs.gov