A royal flush can be quite a rush. But the IRS casts a wide net when defining gambling income. It includes winnings from casinos, horse races, lotteries and raffles, as well as any cash or prizes (appraised at fair market value) from contests. Those who participate in any of these activities must report such winnings as income on their federal return.
If a casual gambler, report winnings as "Other income" on Form 1040. One may also take an itemized deduction for gambling losses, but the deduction is limited to the amount of winnings.
In some cases, casinos and other payers provide IRS Form W-2G, "Certain Gambling Winnings" -- particularly if the entity in question withholds federal income tax from winnings. The information from these forms needs to be included on your tax return.
Those who gamble often and actively might qualify as a professional gambler, which comes with tax benefits: It allows them to deduct not only losses, but also wagering-related business expenses -- such as transportation, meals and entertainment, tournament and casino admissions, and applicable website and magazine subscriptions.
To qualify as a professional, one must be able to demonstrate to the IRS that a "profit motive" exists. The agency looks at a list of nonexclusive factors when making this determination, including:
• Whether the taxpayer conducts the gambling activity in a "businesslike" manner,
• The quantity of time spent gambling, and
• How much income is earned from nongambling activities.
But don't "go pro" for the tax benefits, since doing so is a major financial risk. If you enjoy the occasional game of chance, or particularly if you're considering gambling as a profession, please contact Prince & Tuohey CPA Ltd. We can help you manage the tax impact.
Prince & Tuohey CPA Ltd. is located at 2836 Malvern Ave. Suite D, Hot Springs, AR 71901. Call 501-262-5500 or visit website http://www.princetuohey.com for more information.Business on 06/11/2018
Print Headline: Know your tax hand when it comes to gambling