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When Do You Report Your Gambling Winnings?

When Do You Report Your Gambling Winnings?

July 19, 2023

Summertime is here, and you are planning a nice getaway long weekend in Las Vegas. Great pools, entertainment, a foodie paradise, and some gambling. What is not to love?

While gambling can be exciting and fun, understanding the implications of winning and losing is essential when preparing your taxes.

We recently read a case *Jacob Bright vs. Commissioner of Internal Revenue*, regarding a taxpayer claiming gambling losses. While you can claim some gambling losses understand that the IRS is paying attention. If you win $1,200 or more gambling, you must have a W2G form and report it on your taxes.

The taxpayer in the case reported $241k in winnings on his taxes. His tax preparer listed his profession as a professional gambler. Since this was a significant amount of money reported, the US Tax Court investigated. To compound the issue, once the US Tax Court got involved, the taxpayer admitted that he did not review his taxes before the preparer submitted them to the IRS and was unaware of how the preparer came up with the $241k in winnings number. The taxpayer also claimed that he had less in winnings than reported and that his losses were equal to his winnings.

The taxpayer frequently gambled at multiple casinos and took advantage of the Casino Players card programs, which allowed him to receive discounted room rates, food, and gift shop purchases. To determine his actual net losses, the US Tax Court investigators received reports on the money spent on the Casino Players cards and the related W2-G forms. The Court determined that his winnings were $110,553 and, after exhaustive research, decided his losses for the year were $191,756. However, because he claimed $241K as income on his tax return, The Court uses gross receipts of $241k and losses of $191K.

What Lessons Should You Learn From This Experience?

  • Keep good records. This goes for everyone, whether you gamble or not. It can make or break your tax return, or in this case, the lack of records flagged the IRS to do an audit. Audits are stressful- take time now to get your records in order.
  • Report your gambling winnings on your taxes CORRECTLY.
  • Always review your prepared taxes! Not all tax preparers are invested in helping you save money on your tax return. Unfortunately, some preparers put numbers in software and do not question how or what is reported to them.
  • Ensure you have the correct profession listed on your tax return. Listing the taxpayer's occupation as a professional gambler was an additional red flag to the IRS.
  • Get references and hire a legitimate CPA to work with you on your tax return. For California CPAs, you can look them up here.

Perhaps you are not the Vegas type but enjoy horse racing at Del Mar or Los Alamitos, or you are a big winner in your Fantasy Football league; you will still need to report income received. The answer to the question "*When Do You Report Your Gambling Winnings?*" is for any winnings over $1,200. Ultimately, the IRS will undoubtedly get its share of the taxes owed.