Have you been lucky at the track, or won a nice raffle prize? Did your numbers hit in the lottery? Or maybe you had a really good night at bingo or the casinos in Las Vegas this summer? While congratulations may be in order, we have a bit of bad news. Whether you are a professional gambler or made a casual wager, gambling winnings are taxable and must be reported on your tax return.

Winnings Reported to the IRS

Gaming establishments are required to report certain gambling winnings to the IRS, by filing Form W-2G, if your winnings reach the following levels:

• $1,200 or more from a bingo game or a slot machine.
• $1,500 or more from a keno game.
• $5,000 or more from a poker tournament.
• $600 or more of winnings from other types of gambling.

The W-2G will reflect your winnings and any taxes withheld. When your return is processed, IRS computers will match the income reported on your tax return against that reported by third parties. If there are discrepancies, you will generally be contacted by the IRS.

Winnings from gambling are taxable whether or not you receive a Form W-2G, regardless of the amount of the winnings.

Casual Winnings

Casual gamblers will report winnings on Form 1040, line 21 (other income). The winnings are ordinary income, taxable at your regular rate. Losses related to casual winnings are tax deductible as long as you itemize. You are not allowed to subtract your total losses from your total winnings and report the net. Instead, casual gambling losses are claimed as an “other miscellaneous deduction” on Schedule A, Itemized Deductions.

You may not deduct more than the amount of your winnings. A minor consolation: Gambling losses are not subject to the 2%-of-AGI rule, so the only limitation is the amount of your winnings.

Professional Gamblers

If you are a professional gambler, then you are treated as having a business. The income and related losses are reported on your Form 1040 through Schedule C, Profit or Loss from Business. As with casual gamers, losses cannot exceed winnings.

An additional benefit for professional gamblers is that expenses such as travel can be deducted. But be aware that the net winnings from the Schedule C will be subject to self-employment tax ,in addition to your normal tax rate.

Of course, both professional and casual gamblers will need to be able to support losses with items such as receipts, tickets, statements or other records that show both winnings and losses.

Contact your tax professional for more information on reporting requirements and the types of records you will need.