Here are some reminders from the IRS about what to do with your gambling winnings and losses:
# Gambling income includes – but is not limited to – winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes.
# Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment.
# The full amount of your gambling winnings for the year must be reported on line 21 of IRS Form 1040. You may not use Form 1040A or 1040EZ. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form.
# If you itemize deductions, you can deduct your gambling losses for the year on line 28 of Schedule A, Form 1040.
# You cannot deduct gambling losses that are more than your winnings.
# It is important to keep an accurate diary or similar record of your gambling winnings and losses.
# To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.
There you have it. As fate would have it, I was asked a question about gambling and taxes yesterday afternoon, and decided to look this up. I thought it might be of interest to others.
TV Guide once had a good article about ‘Game Show Winners’ who didn’t realize all the tax issues that came along with winning some of the prizes that they didn’t even actually want or couldn’t get around to using….like a vacation to Peru, or a year’s supply of cat food (and they didn’t even own a cat).
When winning anything…it doesn’t seem to wise to ‘jump for joy’ until after you’ve paid the IRS.
As far as hitting Megabucks…I still don’t know if I’d take the immediate payoff (and do a 3 year income-averaging tax return) or if I’d choose the multi-year payout. I realize the last way is definitely the best thing to do, for tax reasons. Still. I think I’d take the money and run.
Who knows. Maybe IGT…or whoever promises to pay that 10 or 20 year allotment…might go out of business (?), change ownership, go bankrupt…or whatever else could happen.
Yes. I’d take the ‘immediate money’, give the IRS it’s share, claim no deductions (which might be challenged later) and when I finally see the remaining amount…and have it in my hand…only THEN would I jump for joy.
BTW. If you ever wonder why all those celebrities owe huge tax bills and get their personal possessions auctioned off for pennies on the dollar (things like personal photos, trophies, etc)…it’s because they take the (often) stupid advice of accountants who try getting them so-called great tax breaks…which the IRS later challenges or dis-allows.
Then, years after the fact they have to pay accumulated interest, late fees and penaltes.
Elvis and Colonel Parker avoided tax audits altogether by letting the IRS itself, do The Elvis Empire’s tax filing.
Of course Elvis likely paid way too much tax…but at least he knew he wouldn’t get audited…or have deductions be disallowed…5-7 years later.
Beware of your accountants advice on deductions. Plenty of Amway dealers (usually dentists and doctors) try using deductions for their home-business office (and equipment, personal computers, etc), only to be challenged and audited and disallowed deductions years later.
What a headache.
My last thought on people who complain about paying taxes. Most of them are the ones who are the ultra-American Patriotic, Pro-War types…yet, complain about giving their Uncle Sam and America its fair share of their income.
I’ve always thought that the best taxation system for the USA…would be to hold a yearly TV Telethon…and try to get its annual budget thru donations. Wouldn’t that be a funny way of doing things?
hahaha.
One Last Comment (Yeah right) on taxes.
Willie Nelson really got a bad deal. The IRS auctioned off things like his personal collections of rare items. A biography (or maybe his auto-biography) talks about it. He lost things like rare saddles, art pieces and the like. Luckily, some of his friends and fans purchased his ‘personal possessions’ and gave them back to him.
He went thru a tax-nighmare for about 4 years, then came out with his IRS (music) record (which was a very funny thing to do).
He had a prestigious accounting firm do his taxes (I think it was Price-Waterhouse). They tried making themselves look good to him by placing money into weird investments (oil rigs or something) and making it seem like they were saving him money and ‘getting around’ the taxman.
The IRS later disallowed those so-called tax-haven investments and he had to pay the price. Years later he finally won a lawsuit against his accounting firm. A good thing…but was the nightmare worth it?
A lot of people fool themselves by thinking they’ll try taking all the deductions they can possibly think of. This isn’t always wise.
The IRS has a very well developed method of ‘red-flagging’ certain occupations and deductions. It’s a computerized and highly advanced system that no one should fool with or think they can sneak past.
A lot of professional types (lawyers, doctors, etc) try starting a side-line home business and start trying to take deductions for a portion of their house (home office) and maybe their car and transportation expenses and also trips and meals etc.
The IRS ‘red flags’ a lot of things. Years after you file they will come and ask you to prove those deductions. By that time most people have thrown out all their receipts and records. And even if they still have their records they must convince the IRS of the validity of each expense.
I saw a lot during my time with the IRS. It isn’t an evil-agency at all. It fact, it’s come a long way in making itself more ‘user friendly’
Blame your politicians for your taxation. The IRS is merely the ‘collection agency’ for the President and the USA.
Treat auditors well if they come to audit you.
Don’t think you can hand them a shoebox-full of receipts for them to try to organize. That’s your job, not theirs. Be courteous and helpful. Don’t mis-direct your anger and blame them for taxation. They are merely a collection agency.
And don’t be a corrupt person who tries to fib and fudge on your tax returns. Most tax-havens aren’t as good as your accountant tells you they are. Accountants (many times) like showing off their ability to look like they are saving you money…by providing you with bogus investment opportunities.
When you get audited for them…your tax advisor will bill you again for your visits, and he won’t be the sympathetic supporter you thought he’d be.
Politicians and Tax Attorneys. What a bunch of…………..
It’s not the IRS you should be mad at. Direct your taxation anger at the right source. IRS employees really don’t like the fact that people try dis-respect their profession. Blame your politicians if you don’t like your tax-rate. IRS employees are simply making sure that your neighbors don’t get away with cheating. If you pay your taxes you should be glad that cheaters eventually are forced to also. Fair is fair.
The IRS is your friend. Believe it or not.
Anything from the IRS on Foreign casinos? I’ve been curious and asked the casinos but only get the runaround. So far, I’ve only had losses, but if I do win and perhaps win big, does a US citizen who gambles on the High Seas aboard a Panamanian flagged ship owe taxes on any winnings?