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Paying Taxes on Gambling Winnings (Like Crazy Super Bowl Bets)

Posted By Jim On 02/06/2012 @ 10:18 am In Personal Finance | 9 Comments

Did you put in any wagers on the big game last night? I didn’t but my friend did and he cleaned up. Remember the safety to open the game? Tom Brady steps back, throws it down the middle with no one within twenty yards of the ball? Intentional grounding, safety, two points for the New York Football Giants? Well, as it turns out, the payout on a $20 bet that the first score of the game would be a Giants’ safety was $1500. I knew this because my friend, who was sitting next to me, had won it.

This was right after winning a few bucks that Kelly Clarkson’s singing of the national anthem lasted a hair under one minute and thirty five seconds. Oh, he rolled that over into a bet that the final scoring touchdown would be made by Ahmad Bradshaw (I bet the little hesitation made him nervous… but at that point he was playing with house money). So while I didn’t make a single bet… sitting by him, and winning vicariously, was awesome. Oh… and he is a Giants fan, so his team also won the Super Bowl. Not a shabby Sunday!

So now the real question remains… does he owe taxes on those gambling winnings? Yep.

Form W2-G

If you win:

  1. $1,200 or more in gambling winnings from bingo or slot machines;
  2. $1,500 or more in proceeds (the amount of winnings minus the amount of the wager) from keno;
  3. More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament;
  4. $600 or more in gambling winnings (except winnings from bingo, keno, slot machines, and poker tournaments) and the payout is at least 300 times the amount of the wager; or
  5. Any other gambling winnings subject to federal income tax withholding.

then you will receive a Form W2-G [3] from the payer. In my friend’s case, none of his bets had a payout of 300x the wager so had he made the bet with a sports book at a casino, he would get cash and no Form W2-G. He made his bet with an online outfit, likely located offshore, and they surely won’t send him a Form W2-G.

No Form, Still Owe Taxes

Even if you don’t receive an official Form W2-G, you are responsible for declaring those winnings on line 21 of your Form 1040 [4], labeled Other Income. At this point, you would also be able to deduct any gambling losses under Line 28 of your Schedule A, but that would require you to itemize your deductions. As for supporting documentation of your losses, you can just keep a record of your gambling wins and losses in a log. Plenty of poker professionals do this, as a matter of record keeping anyway, but it’s important if you want to be able to reduce your tax liability by offsetting your wins from your losses. Unfortunately, if you lose more than you win, you can’t offset other non-gambling related income.

Now that you’ve heard the official word and what you should do, the reality is that the Form W2-G was created for those crazy long shot winnings on progressive slot machines and keno games. You won’t get one for playing the money line on a game and few people expect you to claim the $20 you won betting your sucker New England Patriots’ fan friend. While my friend should claim it on his taxes, I doubt few people would fault him for omitting it. (that said, I don’t know if he’d be ahead if he kept a log!)

(Photo: cpardue [5])


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[2] Email: mailto:?subject=http://www.bargaineering.com/articles/paying-taxes-gambling-winnings-crazy-super-bowl-bets.html

[3] Form W2-G: http://www.irs.gov/pub/irs-pdf/fw2g.pdf

[4] Form 1040: http://www.bargaineering.com/articles/tax-form-1040-1040a-1040ez.html

[5] cpardue: http://www.flickr.com/photos/cpardue/2253378571/sizes/s/in/photostream/

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