Navigating Tax Implications of Gambling Winnings

Navigating Tax Implications of Gambling Winnings

Gambling in the United States has evolved in recent years. The rising number of states legalizing sports betting, coupled with the introduction of new casinos across the country, has boosted exponential growth within the industry. According to the American Gaming Association, in 2022 alone, there were a staggering 1,011 casinos in the United States, generating a gross gaming revenue of $99.4 billion.

Tax Responsibilities: From Jackpots to Small Wins
Sure, the chance of hitting the jackpot or winning big at the casino is thrilling — however, it’s crucial not to overlook your tax obligation on anything you win from gambling. Whether you’ve scored big enough to receive a Form W-2G or you’re just a casual gambler, the IRS expects you to report all gambling winnings.

However, the rules differ for amateur and professional gamblers.

Distinguishing Between Professional and Amateur Gamblers
Professional gamblers, viewed as engaged in the trade or business of gambling, have a distinct set of tax considerations based on specific criteria. According to Accounting Today, if the client is a professional, they can deduct any wages, educational material or other costs as expenses for running their small business. Don’t forget about the self-employment taxes though!

For amateur gamblers, the tax process is a bit simpler. Amateur gamblers can claim their losses up to the amount of their winnings by itemizing deductions. However, with the higher standard deduction introduced in recent years, fewer taxpayers are opting to itemize.

Maximizing Deductions: Expenses for Running a Gambling Business
Regardless of whether you’re a professional or amateur gambler, maintaining accurate records is key. According to the IRS, deducting losses requires keeping a detailed diary or similar record of your gambling activities, including both wins and losses. Additionally, you must be able to provide receipts, tickets, statements, or other documentation to substantiate the amounts reported.

Consulting a Tax Professional: Ensuring Compliance and Maximizing Returns
As the world of gambling continues to evolve, staying informed about your tax obligations is crucial. Consulting with a knowledgeable accountant can help ensure that you navigate the complexities of reporting gambling income accurately and efficiently. Don’t let the thrill of the game overshadow your responsibilities as a taxpayer. Contact Leone, McDonnell & Roberts today to learn more.