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Whether you enjoy the thrill of slot machines at a local casino or the convenience of online gaming, the excitement of a big win is often followed by a less exciting reality—tax obligations. Gambling can be an enjoyable form of entertainment, but it’s important to understand how winnings are treated by the IRS. Fortunately, guidance from a McAllen CPA can make navigating these rules much easier and help ensure you remain compliant with tax laws.

Gambling Winnings and Tax Obligations

Gambling winnings aren’t just limited to the jackpot from a slot machine. The IRS considers income from lotteries, raffles, horse races, casino games, and even fantasy sports as taxable. This includes both cash prizes and the fair market value of non-cash prizes such as trips, electronics, or vehicles.

All gambling income must be reported on your federal tax return, regardless of the amount. This rule applies even if your winnings don’t trigger an automatic IRS form from the casino or gambling venue. Simply put, if you win money or prizes, the IRS wants to know about it.

Online gambling is not exempt either. Despite common misconceptions, Internet-based gambling—whether domestic or offshore—falls under the same tax reporting requirements as in-person gambling.

When a W-2G Is Required

If your winnings exceed a certain threshold or are subject to federal tax withholding, the payer (such as a casino) is required to issue Form W-2G. This form details the amount you won and the taxes withheld, and it must be included in your annual tax filing.

The thresholds vary depending on the type of gambling. For example:

• $1,200 or more from bingo or slot machines
• $1,500 or more from keno (after subtracting the amount of the wager)
• $5,000 or more from poker tournaments

If you receive a W-2G, you’ll need to include it when preparing your tax return. A McAllen CPA can ensure you properly document this income and account for any withholding that has already occurred.

Understanding Estimated Taxes

Depending on the amount of your winnings, you may also be required to pay estimated taxes throughout the year. This is especially relevant if taxes were not withheld when you received your winnings.

Estimated taxes are typically paid quarterly and help avoid underpayment penalties. A McAllen CPA can assist in calculating these payments accurately so there are no surprises when it’s time to file.

Deducting Gambling Losses

One of the most misunderstood aspects of gambling income is how losses are treated. While you cannot claim a net loss on your tax return, you can deduct gambling losses—up to the amount of your reported winnings—if you itemize your deductions.

Casual gamblers can only claim losses as miscellaneous itemized deductions. If you don’t itemize, you won’t be able to deduct your losses at all. On the other hand, professional gamblers report both winnings and losses on Schedule C and may be eligible for additional deductions related to their gambling business.

It’s important to remember that your deductions for losses cannot exceed your winnings. So, if you won $5,000 and lost $7,000, you may only deduct $5,000.

Special Rules for Group Winnings

Sometimes, groups of friends pool their money to purchase a single lottery ticket or place a bet. If that ticket wins, the IRS requires each individual to report their share of the winnings. In such cases, the group should file Form 5754, which identifies each member and how the winnings were distributed.

This form helps prevent one person from being solely responsible for reporting the entire amount. A McAllen CPA can help ensure the form is completed accurately and submitted on time.

The Importance of Record-Keeping

Proper record-keeping is essential when it comes to gambling activities. To claim any losses, you must be able to substantiate your winnings and losses with documentation.

Maintain a gambling diary or ledger that includes:

• The date and type of gambling activity
• The location of the gambling venue
• The amounts won and lost

You should also keep any supporting documents such as receipts, tickets, statements, and digital records.

Here’s a quick guide to what you should keep for various types of gambling:

• Bingo: Number of games played, cost of cards, and prize amounts.
• Keno: Validated tickets, casino credit reports, and check cashing records.
• Racing: Wager records, win/loss statements, and betting slips.
• Slot Machines: Machine numbers, date/time of play, and payout receipts.
• Casino Tables: Table numbers and any credit records or statements.

Even if you gamble online, the same rules apply. Digital receipts, bank statements, and online transaction histories can serve as documentation.

Why Work With a McAllen CPA?

Tax laws related to gambling are nuanced and easy to overlook. A trusted McAllen CPA like Burton McCumber & Longoria can help you ensure your winnings are reported correctly and that you take full advantage of any deductions available to you.

Whether you’re a casual player or someone who frequently participates in gambling activities, a CPA can provide valuable guidance and help you avoid potential issues with the IRS. From preparing accurate returns to strategizing estimated tax payments, the right professional support makes a big difference.

Final Thoughts

Enjoying a night out at the casino or placing a bet online can be exciting, but the fun shouldn’t stop when tax season rolls around. Understanding the rules and staying organized can help you keep more of your winnings and avoid costly mistakes.

If you have questions about reporting gambling income or want to ensure your tax filings are accurate and complete, contact Burton McCumber & Longoria today. As your trusted McAllen CPA firm, we’re here to help you stay compliant and confident in your financial decisions.