Tax Tip of the Week – “I Hit the Jackpot!! What Do You Mean I Have To Pay Taxes On It?”

Home » Blog » Tax Tip of the Week – “I Hit the Jackpot!! What Do You Mean I Have To Pay Taxes On It?”

Yup! That is 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.

Gambling_away_ 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, 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 7-7-7 and just 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 plus winnings of $1,000). But in your return, that will not be taken as a deduction. The law states, 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ATM withdraws from the casino’s ATMs and personal checks cashed from the casino(s), the IRS can argue that the money withdrawn was for personal use. What we suggest is enrolling in the casino’s member club, if offered, and use the membership. That membership usually tracks your winnings and losses and will meet the IRS’s requirements of proof.  But this only works if you do indeed use the membership, and they are usually FREE!

So, the next time you hit the slots remember, the IRS can still get you. So have fun and good luck!