Whether you’re a regular at the racetrack, an online sports betting enthusiast or spending your first time at the slots, hitting a jackpot can be exciting. But keep in mind, as you celebrate your big win, the IRS will be waiting with its hand out.
Even winners can be losers if they don’t pay their taxes. Consider the consequences of your good fortune and follow the tips below:
- Ask about a W-2G. Any money you win gambling may be considered taxable income and should be reported on a W-2G form. If you try to fudge the numbers or not report the win, you’ll quickly find yourself on the wrong end of a tax bill. If you win a substantial amount, ask the casino how and when tax forms will be issued.
- Understand withholding. According to the IRS, you must withhold federal income tax from the winnings if they (minus your wager) exceed $5,000. So before you spend it all, you might want to hold some in reserve. If you’re concerned about having the money to pay taxes due, see if the casino will do the withholding for you. Not all casinos offer this, but it never hurts to inquire.
- Track your losses. You may be able to write off some of the money you lost in pursuit of a jackpot — but only if you can back up those numbers with hard data. If you carry a casino loyalty card, request a report showing how much you spent and how much you won, while your card was in use. It’s not the perfect solution, but it can be a good first step if you plan to write off your losses in hopes of reducing your final tax bill.
- Research your state laws. In addition to federal taxes, you may also owe state taxes on your winnings. Each state has its own rules and formulas — some charging a flat percentage, while others basing tax on the total amount won. Knowing what your state requires can help you better plan for tax time.
As always, consult your financial professional if you find yourself on the winning side of a wager. This information is provided for educational purposes only and should not be considered tax or financial advice.