Here is something you can bet on and win every time. The Internal Revenue Service (IRS) wants you to report and pay taxes on all your income. Yes, that includes the income that's not reported by a third party. It's a common misconception, that if you don't receive a tax document you don't have to report it. But that is not true. This means yes, gambling winnings are taxable income.
There are different rules for casual gamblers and professional gamblers about what they can deduct. But the fact remains that all winnings are fully taxable.
Who is Responsible for Reporting Gambling Income?
The responsibility for reporting gambling income is that of the individual. This is regardless of whether they received a tax document in the Spring. The IRS requires the payer to issue the individual gambling a W-2G, Certain Gambling Winnings. This form reports the amount of gambling winnings for the tax year as well as any Federal or State tax withheld. This is why online betting platforms, state lotteries, and race tracks will have you fill out a W-9 before issuing you a check for your winnings. They need your taxable information to make sure that they can report your winnings to the IRS. However, these forms don't always get issued.
When you are not issued a tax form for your winnings you need to make sure you have proof of your winnings and losses. The IRS wants you to keep an accurate diary or log. It should contain the following information:
Date
Type of specific wager
Name and address of establishment
Name(s) of other person(s) present
The amounts you won or lost
In addition to this diary, you should also keep any other documentation to prove winnings and losses. This can be any of the following:
Wagering tickets
Cancelled checks
Substitute checks
Credit records
Bank withdrawals
Statements of winnings
Payment slips
Where does gambling income go on my tax return?
If you received a W2-G from the payer it will be input the same way as a W-2. You will report your income on page 1 of the 1040. You will report any taxes withheld on page 2 of the 1040.
When there is not a third party tax document for your winnings you will report them on Schedule 1 of the 1040. Line 8 of Schedule 1 is where "other" income goes. It will be here because the income is not earned, therefore social security and Medicare taxes are not applicable for this income.
Professional gamblers report their income and losses on a Schedule C, Profit or Loss from Business (Sole Proprietorship). To qualify as a professional gambler you have to conduct your gambling as a trade or business. The burden of proof for this is on you, the taxpayer. Otherwise, the IRS may disallow certain deductions and losses. IRC §183 covers activities not engaged in for profit. The courts typically rule for nonprofessional status when the characteristics of gambling appear to be recreational. A recent case that is an example of this was in 2023, Susan E. Mercier ET AL. V. Commissioner.
Can you write off gambling losses?
You can write off gambling losses if you are a professional gambler or if you itemize your tax deductions. Professional gamblers can write off their losses on Schedule C of their tax return. Recreational gamblers can deduct their losses on Schedule A, Itemized Deductions. Many taxpayer do not itemize their deductions. This is due to the standard deduction for the 2023 tax year being $27,700.
An example of other itemized deductions are:
Charitable giving
Mortgage interest
Property taxes
State and local taxes
If the combined total of these taxes and gambling losses aren't more than the standard deduction it won't be to your advantage to itemize.
If you do qualify to itemize you can only claim gambling losses to the extent of your winnings from 2018-2025 under the Tax Cuts and Jobs Act (TCJA) - IRC §165(d).
Always consult with your tax professional to see if you can still deduct your gambling losses at the state level, even if you can't at the federal level. For example, in my home state of Kentucky, you can deduct your gambling losses on the state return even if you don't on your 1040.
As a recreational gambler, you can only deduct losses. You cannot deduct the cost of bingo, lottery, or raffle tickets.
Fanduel Taxes
Yes, your winnings from Fanduel and other fantasy sports platforms, such as Draft Kings are taxable. Fanduel will issue a W-2G or 1099 for your winnings. Once your winnings reach $5,000 they will withhold 25% for you for federal tax purposes.
Fanduel is not the only gambling platform whose winnings are taxable income. The following gambling winnings are also taxable:
Bingo halls
Casinos
Fair market value of prizes like cars and trips
Horse races
Lotteries
Raffles
An example would be if you win an all-expense paid trip to the next Super Bowl from a raffle. You would pay taxes on the fair market value of the trip. This includes the cost of travel and lodging paid on your behalf as well as the tickets.
Note: If you have an unexpected tax bill that you can't pay due to your gambling winnings book a call with us at www.Bowenstaxsolutions.com. We specialize in helping taxpayers set up payment arrangements and negotiating with the IRS. Book your call today.
What happens if I don't report my gambling winnings?
If you intentionally don't report your income you're guilty of tax evasion. If you accidentally fail to report your gambling income you run the risk of the IRS assessing tax penalties. The accuracy-related penalty is a common tax penalty for taxpayers who don't report income due to negligence or make a substantial understatement. The penalty is 20% of the underpayment of tax. In addition to paying the penalty, you'll also have to pay the tax. So there is no reason to intentionally leave your gambling income off.
If you have gambling income that you haven't reported in past years you can correct this by filing an amended tax return. Going forward make sure that you track and record all of your gambling winnings and losses so you can report them accurately.
Timalyn S. Bowens EA is America's Favorite EA and Tax Expert who will work hard to find a customized legal solution for you! As an Enrolled Agent licensed through the Internal Revenue Service Timalyn can fight the IRS for taxpayers in all 50 states. As the host of Tax Relief with Timalyn Bowens and a YouTube content creator she empowers taxpayers to make educated decisions about their tax situation.
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Bowens Tax Solutions, we serve our Louisville-area neighbors by providing the tax services and knowledge needed to succeed. We are here to assist you with your tax issues and preventative care. Visit our website at www.bowenstaxsolutions.com for more information.