Whether you gamble occasionally or earn a living from it, you should know the tax implications. People believe that winnings do not need to be reported since they are winnings, but this could not be further from the truth. Many people understand the importance of reporting winnings but are unsure how to prove their gambling losses to the IRS.
Proving gambling losses to the IRS for tax purposes is much simpler than many people believe them to be. This is because while winnings are reported as income, losses meet the requirement of certain deductions.
To learn more about the tax implications of gambling earnings and losses, you should consult a tax professional to ensure it is done correctly. Keep reading to discover more about how to prove gambling losses when you file your taxes.
Are Gambling Winnings Taxable?
Regardless of how it was acquired, all money earned must be reported to the IRS when you file your tax return every year. This is because it does not matter if the money was made from a full or part-time job or through gambling; money earned is earned.
Additionally, no matter how they are won, gambling winnings are taxable, according to the Internal Revenue Service. This means that whether you won a local lottery, raffle, poker game, or playing the slots at a casino, the winnings are considered income.
Do Foreign Gambling Winnings Need to Be Reported For Tax Purposes?
You are required to report whether you earned your winnings at the local casino in the United States or a foreign country. This also includes any online gambling ventures, whether they occurred in the U.S. or not. The IRS has also determined that it does not matter where the winnings came from; you must report them.
Keep in mind that, since most gamblers do so casually, any winnings whatsoever should be reported on your taxes. There are many people who believe that they are only required to show the difference between their winnings and losses. However, the IRS requires that ALL winnings be reported, and then losses are filed as deductions from the earnings.
How Do You Prove Gambling Losses to the IRS?
For the most part, proving gambling losses is simple to do once you have reported your winnings as income. This means that, like most reported income, taxpayers can deduct certain expenses and other losses as deductions.
Gambling losses are no different than other expenses you may incur, such as paying educational or childcare expenses. Since the losses are directly proportional to the winnings, taxpayers can report them on the itemized deduction for the Schedule A list.
It may be essential to note that you will only file your losses as a deduction up to what you won. This means that if you lost more than your winnings, you could only deduct the amount that is equivalent to the winnings reported.
For some people, this can be frustrating since they end the tax year on a loss; however, as the IRS notes, gambling is risky, and sometimes you win, and sometimes you lose. The IRS is not responsible for covering losses just because you lost them.
An essential part of reporting your winnings and losses is that they both should be done meticulously so that you do not end up owing more money than you should. If you choose to gamble, you must pay taxes and assume responsibility for any losses you incur.
Most entities such as casinos, lottery companies, and others are required to issue winners who earn over a certain amount a W-2G, or Certain Gambling Winnings, form. Keep in mind that even if they do not give you this form, you are still responsible for reporting any winnings on your tax return.
Do You Need To Keep Records of Winnings and Losses?
Keeping meticulous records is crucial whether you are an occasional gambler or one that gambles more often. The purpose of record keeping is to protect you from being audited or not proving that you did win what you say you did.
This is especially important since not all gambling entities will issue you the proper forms once you have won over the required amount. Keeping accurate records will help you understand precisely what you have won and lost so you can prove it if needed.
Additionally, record keeping can prevent you from having to pay more money than necessary to the IRS if they audit your taxes and decide you cannot prove that you won or lost what you claimed.
There are many ways to keep track of your winnings and losses when it comes to gambling for most people. The most obvious way to keep account of this is by holding on to various documents that prove you gambled, including the W-2G forms, gambling tickets, bank records, or any receipt you may have received.
Another way you can keep track of your winnings and losses is to keep the information on a spreadsheet on your computer or in a record book of some kind. In these records, you should list the dates and the specific gambling activities, the locations of where you gambled, and the amount you won or lost.
How Does the IRS Know If You Win or Lose?
Many people underestimate what the IRS knows about their various earnings throughout the tax year. This is because they typically only view it from their side of the equation.
Keep in mind that entities such as casinos or state lottery organizations must submit documentation on any payouts that have occurred during the tax year. This means that if they have reported paying you a certain amount, but you do not show the same, the IRS will begin to investigate.
The best rule of thumb is to ensure that you report any earnings from your gambling adventures, whether you won or lost. This can ensure that you stay in financial shape and do not end up having to pay out more than you have.
In general, gambling can be an exciting activity for many people. Still, it is imperative to understand that your responsibility is to ensure any winnings are reported to the IRS. A deduction can help you recover a portion of the losses you suffered. To avoid being audited by the Internal Revenue Service, you should consult a tax professional if you are unsure how to report winnings and losses on your tax return.
This article was brought to you by the Bitcoin Games on MintDice. Originally posted to the MintDice Blog.