Gambling is a profitable business in the United States but there are some things you should know about the tax accountability. After your big win, the IRS will get their share of your winnings. If you don’t take care of your taxes when you win, then you could pay more later. You will pay, but there are some things you can do to keep the taxes manageable.
Winnings from gambling are taxable income with restricted deductions for losses. There are some strategies which can help absorb tax costs for money that is won and money that is lost. It is better to pay taxes on gambling winnings at the place where they are won because there is a difference in the amount of taxes that you will pay.
Winnings affect your taxes in two ways: directly or indirectly. Money won from gambling is taxable income. Not only is just money taxable, but other winnings as well such as items won from sweepstakes, lotteries, sports pools and online gambling. According to the IRS this is ordinary income.
Casinos, lotteries, and sweepstakes report your winnings to the IRS when your winnings exceed $600 at a time. For bingo or slot machines, they report your winnings if it exceeds $1200 or $1500 for a keno game. The mandatory withholding rate for winnings is 25% if your winnings exceed $5,000. Even if your winnings are split with another person, the total amount is taxed even though you receive only a portion.
If you give an identification number, then 25% will be paid in taxes, but if not, it can be increased to 28% for all winnings. For prizes other than cash, the IRS charges according to the value. These items can also be taxed either at the place the are won, which is 25% or for 22.33% of the value.
Winnings via gambling can have an indirect affect in that they can increase the adjusted gross income, which can increase the amount of taxes you pay in several ways such as itemized deductions, and prevent Roth IRA conversion if your winnings raise your adjusted gross income above $100,000.
When you gamble, know what you are doing. Do not go into it blindly and develop tax troubles down the line for yourself. Be prepared and gamble cautiously. Be prepared by consulting someone knowledgeable about gambling taxes. An accidental big win should not become a tax burden to you and your family. Find out what your options are by consulting someone who specializes in gambling taxes. If your winnings are sizeable, seek advice as soon as possible.
There a several ways to avoid a negative impact on your taxes with your good luck. Even if you have winnings that are payable over a period of years and sell your winnings, the amount you receive for the sale of the winnings is considered taxable income just as the original winnings were. So, before you sell your winnings, consult a tax professional who specializes in these kinds of matters.
Winning big is a great feeling, but do not ignore the tax responsibility of your winnings. Take care of it. If you take care of the taxes when you win, you can keep your good luck working in your favor instead of against you. Why pay more when you can pay less?Tax Trouble by Steve