There are only two issues people who gamble are concerned with, how much do they get taxed on their gambling income and how much of their gambling losses is tax deductible.
The answer to the first question is this; gambling income is anything you have gotten from local or state lotteries, from any casinos across the country, horse races, and from prizes like cars and other properties. And this is the math; for any amount over $600, the establishment or the business will issue you a form W-2G. You use this W-2G as evidence when you file your taxes and/or if you get audited. With the IRS record keeping is essential. If you do not have anything to back your claims, they are not going to be convinced. You have to report all your income accurately. You should keep the following records every time you earn any income through gambling or loss income through gambling for deduction:
The amount you used for a wager and in what kind of activity. For example if you bought a $2 dollar lottery ticket. $2 is your wager and the purchasing of the lottery ticket is your activity.
For any winnings over $5000, the establishment or business is required to withhold 28% of the income for federal income tax. If you do not have your social security card, they will withhold 31%.
When it comes to gambling losses, the IRS is very strict. Every year they get taxes from people in which gambling income is shrinked down almost to nothing and the losses are skyrocketed. The IRS has a simple rule for gambling losses; you can only claim deduction on losses equal to or less than your winnings. For example, you win $300 and then lose $700 in gambling for a tax year. You can only claim up to $300 in losses, no more. The only good thing happens to be that IRS is not too particular about how you lost your money as long as it was gambling. If you won $300 in the lotto and you can claim any $300 that you lost at the casinos or horse races.
Another good reason for record keeping is that gambling income and losses are one of the favorite red flags the IRS looks for in auditing people. So have all your paperwork in order because you never know when the IRS is going to come for you!
