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Gambling And Lottery And Their Tax Treatment
So you are a lucky guy and a big winner in Vegas, or even much luckier and hit the jackpot or won the lottery. What is next? You got it: Uncle Sam wants his portion of your luck!
Winning at casino (any kind of gambling) or winning a lottery are considered income according to the IRS, and as such, you must report your winning on your tax return and pay tax on it. The IRS goes even further and claims that if you find money, that is income to you and must be reported on your tax return! There is famous tax court about this called Cesarini V. United States. In 1964 the Cesarini family bought a piano for $15 in an auction. When they brought the piano home and cleaned inside, they found a sack money with a value of $4,467 inside the piano (approximately $40,000 in today’s value). They, like most rational people, did not report the money in their tax return thinking it is not required by law, but in an IRS audit, the IRS claimed that they should have reported the money as income. The tax court ruled in favor of the IRS and the Cesarini’s had to pay tax on the money they found in the piano ☹
The IRS, however, is not as cruel as it sounds. From your gambling or lottery winning (or even the money that you find) you can deduct your cost. So if you are in Vegas and playing Blackjack or Poker or Roulette or Craps and you put down $100 and won $1,000, your taxable income is $900 (1000 – 100). You should report this income on Schedule 1 of your Form 1040 as other income. The IRS also allows you to deduct your gambling losses against your gambling gains. So if on the second night you put down $200 and lose it all, you have $900 of winning from the first night and $200 of loss from the second night. Make sure that you do not combine the two and report them separately. Gambling losses can be deducted on Schedule A as an Itemized Deduction. Note that your gambling loss deduction is limited to your gambling gains. For example, if you win $700 and lose $1,000, the maximum gambling loss that you can claim is only $700.
Winning at casino (any kind of gambling) or winning a lottery are considered income according to the IRS, and as such, you must report your winning on your tax return and pay tax on it. The IRS goes even further and claims that if you find money, that is income to you and must be reported on your tax return! There is famous tax court about this called Cesarini V. United States. In 1964 the Cesarini family bought a piano for $15 in an auction. When they brought the piano home and cleaned inside, they found a sack money with a value of $4,467 inside the piano (approximately $40,000 in today’s value). They, like most rational people, did not report the money in their tax return thinking it is not required by law, but in an IRS audit, the IRS claimed that they should have reported the money as income. The tax court ruled in favor of the IRS and the Cesarini’s had to pay tax on the money they found in the piano ☹
The IRS, however, is not as cruel as it sounds. From your gambling or lottery winning (or even the money that you find) you can deduct your cost. So if you are in Vegas and playing Blackjack or Poker or Roulette or Craps and you put down $100 and won $1,000, your taxable income is $900 (1000 – 100). You should report this income on Schedule 1 of your Form 1040 as other income. The IRS also allows you to deduct your gambling losses against your gambling gains. So if on the second night you put down $200 and lose it all, you have $900 of winning from the first night and $200 of loss from the second night. Make sure that you do not combine the two and report them separately. Gambling losses can be deducted on Schedule A as an Itemized Deduction. Note that your gambling loss deduction is limited to your gambling gains. For example, if you win $700 and lose $1,000, the maximum gambling loss that you can claim is only $700.
We Can Help
If you are one of those super lucky people who won the lottery, make sure to contact us right away. Many lottery winners have lost their entire money, and in fact they went bankrupt, because they did not consult with their CPA upon winning. At Federal highest tax bracket of 37% plus state tax (for example California at 13%), you will have to pay half of your winning to the government. With a good tax planning, you can make sure that you won’t go broke like many other winners, you will reduce your tax to less than what you normally would pay, and that you will leave lasting legacy for your children and grandchildren while enjoying the new lifestyle.
Contact us
Email: Info@Qtaxservices.com
Phone: (424) 888-3878
Phone: (424) 888-3878