Tax on Gambling

by Jerry "Jet" Whittaker
June 19, 2006

There is a constant hide and seek game on between the gamblers trying to save as much tax as they possibly can, even if it means breaking a few tax laws. After all they are gamblers and won’t mind taking some extra risk if they can come out with some extra cash. The IRA is not kind to winners nor does it like losers. The federal authorities, as do many states, tax gambling winnings at the highest rates possible. In many states and cities the government takes 50 percent of every additional dollar you earn be it through hard work or play.

How they find out:

No matter how much you want to avoid the tax collector he will find out. Gambling has become such a big business that regulations and laws have converted state lotteries, bingo halls, casinos in fact all forms of gambling establishments into agents for the IRS because very few winners will voluntarily spread the word about their good fortune. The big winners are quickly reported to the taxman on a special form, the famed W-2G, for individual winners. Many a times people pool in to buy lottery tickets as is very common these days, but it does not matter to the IRS if there are two or two hundred players in a pool, there can only be one winning ticket, and somebody is going to turn it in. If you are going to be that person you will have to fill out the form 5754 because you don’t want to have to pay tax for the whole amount. The IRS receives almost four million W-2G and 5754 forms each year. Such is the quantum of winnings through gambling out there.

The payment process:

What if you are a foreigner who is going to be protected by his own country when the payment day arrives? The IRS is smarter that you thought. They will get their dosh. Not only do they demand that you report all your earnings and losses to them they also withhold part of the winnings. Now the withholding amount for aliens as thirty percent. It’s no coincidence that the taxation rate is also thirty percent. So if you have won a million bucks in a gambling session you will only be paid seventy thousand dollars. Thus the story goes that even if you don’t file your returns the IRS already have their money. Gamblers in the country feel the pinch of having twenty eight percent of their winnings withheld. But, really big winners finally end up paying more than 28 or 30 percent to the taxman.

What about losses?

The federal authorities are partners in profit but what about our losses? Well the good news is that you can take off losses amounting to your winnings but only occasionally. Make it a habit and the auditors will definitely come knocking. So beware. If you have something up your sleeve the IRS has probably thought it over already.

Copyright © 2000-2006 GamblingWiz.com All rights reserved.