Gambling
Taxes
March 10, 2006
The Internal Revenue Code
which is a kind of taxing agency monitored by government
is very unkind to winners. The gambling winnings at the
highest rates allowed are shrewdly taxed by the federal
government. Sometimes the top tax bracket is about 50
percent in some high-tax states. Governments take 50
cents out of every additional dollar. You can always
ditch the tax collector though but it is very difficult
to do so. IRS knows that there are not many people who
will voluntarily report their good luck in case they win
an all-cash amount. As a result there are a number of
agents deployed by IRS to monitor the casinos. Form W-2G
is process of reporting big winners. Form 5754 reports
the split in the winning amount. IRS receives nearly
four million Forms W-2G and 5754 each year. This shows
how much big business Gambling has become. Also this
tells it that there are nearly four million big waiting
to be taxed. The IRS and government do not always wait
and make sure they get paid. And there are certain rules
which allow winning player to lower the bite of the
income tax.
Rules of gambling taxes
Gambling winnings are taxed by the IRS (International
Revenue Code) and also by many states. All forms of
gambling wins are taxable and must be declared as income
on your tax return. A file of self-employed business
using Schedule C is held by Professional gamblers. Wins
and losses are reported only in the year as the way they
occur. The winnings in other years cannot be offset by
Excess losses and they cannot be carried forward.
Married couples must combine their winnings and their
losses, and report only one figure for each. Lumping is
unacceptable as per the issued instructions of IRS.
Lumping is about reporting one net win figure and no
losses, or reporting nothing if your net from gambling
is a loss. The reporting of the total of winning
sessions separately from the total of your losing
sessions is must. A record must be maintained for
substantiating your wins and losses. The IRS also
requires supplemental records. Form W2-G is issued to
players by the IRS. It is also sent to the IRS by the
casino for certain gambling winnings. Winnings from
table games such as blackjack, craps, pai gow, baccarat
and roulette do not require W2-G forms. Casinos and card
rooms must report aggregate cash transactions of $10,000
or more in any one day to the IRS.
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