Did you know that gambling winnings are fully taxable? This means that after a big win, you won’t get to keep the entire sum. This is not just the case with lotteries but also with other kinds of winnings, such as horse races, off-track betting, and even game shows.
In this article, we explain how taxes and gambling winnings will work in 2023, give a useful and concise overview of them, and demystify some doubts people have on this matter. If you are interested in this topic and would like to know more about it, continue reading.
How are winnings taxed?
Many people out there try their luck with casinos or other types of bets every day, and of course, not everyone ends up winning. This doesn’t mean that winning is impossible, though, as 13.5% of people playing games at the casino, on an online casino, or at betting walk away with some profits. So, chin up, and let’s learn how winnings work and how they are taxed.
The amount of your winnings will be 24% of the entire sum, and there is simply no way around it. It must be known, though, that this only works with substantial amounts of money, but where do you draw the line? The term “substantial” changes from one person to another, and there must be a more objective way to decide whether or not any winning amount should be taxable.
This is why, often, it depends from game to game. For example, take slot machines, one of the most common games out there. Slot machines and bingo games that you can play at US legal online casinos (listed at agamble.com), as well, have set their line at $1,200. In regards to lotteries and wagering pools, the amount was raised to $5,000.
So, after that sum is reached, 24% of it will be deducted from your payout and sent to the tax institution, the IRS. Please keep into account that this 24% might vary a little and that you might end up keeping a little more and giving a little more.
Some interesting exceptions
Not every game’s winnings will work in the same way. For example, taxes on games of skill, such as blackjack, are not immediately withheld. Still, you are required to report the income and pay taxes on it as soon as possible.
There are other games that are recognized as games of skill rather than chance. These games are roulette and craps, for example. And blackjack, of course, as we already mentioned. The reason behind this differentiation is rather unclear, as slot machines are considered games of chance, even if their functioning is rather similar to the game of roulette.
The interesting part is that you cash in your chips from the table game, making it impossible for the casino to determine with absolute certainty how much money you actually started with. At the same time, this does not mean that you don’t need to report your winnings to the IRS. The right way to go about this is to fill out your taxes for the year and include your winnings in them.
It is extremely important to maintain a good record of your gambling activities, both losses and gains. An adequate balance between losses and winnings might make it possible for you to avoid paying too much tax on a specific big win.
Professional gamblers and their taxes
Many people gamble for fun and entertainment, and others just to try something new. Others, though, choose gambling as a profession, and in that case, it only makes sense that people might fill in their taxes rather differently.
If gambling is your actual profession, your winnings are, interestingly enough, considered regular earned income and are therefore taxed at the normal effective income tax rate. Furthermore, professional gamblers can even deduct gambling losses as job expenses by using Schedule C.
Many people who are nonresidents also indulge in gambling quite frequently, and because of this, proper legislation is due when it comes to their taxes. In their case, there is a flat rate of 30%.
Can you deduct losses?
Well, in some cases, you are allowed to deduct money losses for tax purposes. But this goes on a case-to-case basis, and gambling losses in excess of what you win might not always be manageable to be claimed as a tax write-off. Extensive losses, too, should be taken carefully, as you can’t simply deduct them from your taxes.
This was a comprehensive overview of taxes and gambling in 2023, and we hope it worked as a nice and concise introduction on the matter, useful for people who enjoy staying up-to-date with matters of taxes and gambling and learning all there is to learn to play at their best and get the most out of their playing experience while still paying taxes correctly.
