“I Hit the Jackpot!” Is that Taxable?

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In this video I will discuss how to reduce the taxes on your gambling winnings.

Yup! That right. When you go to the casino and actually win big, you will be taxed on it. Normally when you win a big jackpot, the casino will ask you for information such as your name, address, and social security number. This information will be reported to the IRS. The casino will send you a Form 1099-­‐G to report on your Form 1040, Individual Federal Tax Return, for that year.

But there is a legitimate way to get out of paying taxes on your winnings; it is your gambling losses! As many of us know, you never win on your first try. So for example, let’s say you have been playing for 3 hours straight and have put in $1,500. You currently have $200 left of your original $1,500.  You have lost $1,300.  You hit the Jackpot and won $1,000. You can offset that $1,000 win with your previous loss. 

Now here is the catch: You cannot claim gambling losses on your return! You can only offset your winnings with your losses.  In the previous example, in reality you lost $300 (total gambling losses = $1,300 minus winnings of $1,000).  But on your return, that will not be taken as a deduction. The law states that gambling losses can only offset your winnings. 

On top of that, you will also need to show proof of your losses.  Though you can show ATM withdrawals from the casino's ATM's and persona checks cashed by the casino, the IRS can argue that the money withdrawn was for personal use. What I suggest is enrolling in the casino's member club which is usually free!  That membership usually tracks your winnings an losses and will meet the IRS's requirements of proof.  But this only works if you do indeed use membership. 

So the next time you hit the slots, remember: The IRS wants their share.  Have fun and good luck!