Savant Wealth Management

Winning big after a night of gambling can feel exhilarating. Having Lady Luck on your side can feel great, but don’t forget that Uncle Sam will also want his share of your winnings.

For most people, income comes in the form of your salary, commission, tips, and other job-related earnings. But what many do not realize is that other, more creative ways to receive income exist, and Uncle Sam uses the tax code to capture his share of the pot. It’s common to forget about the income generated when someone acquires prize winnings.

What is Considered Gambling Income?

Just as there are so many different ways to place a bet, there are also many types of winnings and prizes that the U.S. government counts as income.

Often when we think of prize winnings, we think of cash won in a game of slots or poker at the casino, or cash you receive by winning the lottery. Though these constitute winnings and taxable income, the IRS considers other, less tangible prizes to be income as well. Examples of other taxable winnings include cash values for vacation prizes, MSRP prices on vehicles, and cash values for gift cards. Next time you see an individual win a new car or vacation on a game show, remember that the winner will have to pay taxes on the entire value of that car or trip.

How Are Winnings Reported?

For those who do not gamble for a living and prefer the recreational route, requirements for reporting and withholding taxes on winnings depend on the type of gambling, the amount won, and the ratio of winnings to the original bet. For general gambling winnings (excluding Lotto and slot or bingo winnings), any payout that is at least $600 in value and at least 300 times the amount of the wager must be reported to the IRS by the payer. For Lotto winnings and slot or bingo winnings, the payer must report earnings to the IRS if they exceed $1,500 and $1,200 or more, respectively, between Lotto and slot/bingo winnings. The IRS will require a Form W-2G for any reported winnings.

Chances are that if you have Lady Luck on your side and hit the jackpot, the amount you win will be reported to the IRS, and you will not walk away with all of the money. When the payer reports your winnings to the IRS, it will generally reduce your payout by withholding federal taxes at a 24% rate. Regardless of what type of earnings or prizes you win, be sure to check whether the payer withheld an amount from the prize and, if not, ask for the appropriate amount.

When Do I Need to Report Prize Winnings?

Though the IRS does specify minimum amounts that payers must report as earnings, every taxpayer is responsible for reporting all good fortune to Uncle Sam regardless of the amount. All prize winnings you report on Form W-2G, or smaller jackpots you don’t include on this form should go on Form 1040– Schedule 1, line 8b, Other Income. Additionally, you should report the cash value of vacations, vehicles, and other merchandise here. Be sure to include all gambling or prize winnings whether you reported them to the IRS or not for the tax year you earned them.

How Can I Reduce My Taxes Owed?

Since gambling and prize winnings are part of your calculated gross income, you can reduce the amount by taking itemized deductions if you are eligible – that is, if they exceed the standard deduction. On top of reporting mortgage interest paid, property taxes, income or sales taxes paid, medical payments,, and other itemized deductions, you can also deduct your gambling losses up to the extent of your winnings.

If you won $12,000 at the casino in January and lost $15,000 in February of the same year, you would only be able to reduce your $12,000 in winnings with a $12,000 deduction. One thing to keep in mind here is that the IRS does not allow you to directly offset gambling winnings with dollar-for-dollar losses and report the net profit as you can do with capital gains. You must always report your winnings regardless of whether your net losses during that tax year exceeded them. As a result, deducting your losses only allows you to reduce the taxes owed on your winnings, but nothing more.

Author Adam J. Glassberg Financial Advisor

Adam specializes in helping young doctors who need assistance with tax savings, budgeting, loan repayment, and investment strategies. In 2019 he was selected as one of the top 40 financial advisors under age 40 in the country by InvestmentNews.

About Savant Wealth Management

Savant Wealth Management is a leading independent, nationally recognized, fee-only firm serving clients for over 30 years. As a trusted advisor, Savant Wealth Management offers investment management, financial planning, retirement plan and family office services to financially established individuals and institutions. Savant also offers corporate accounting, tax preparation, payroll and consulting through its affiliate, Savant Tax & Consulting.

©2022 Savant Capital, LLC dba Savant Wealth Management. All rights reserved.

Savant Wealth Management (“Savant”) is an SEC registered investment adviser headquartered in Rockford, Illinois. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments and/or investment strategies recommended and/or undertaken by Savant, or any non-investment related services, will be profitable, equal any historical performance levels, be suitable for your portfolio or individual situation, or prove successful. Savant is neither a law firm, nor a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. A copy of our current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.savantwealth.com. The scope of the services to be provided depends upon the needs of the client and the terms of the engagement. Please see our Important Disclosures.