IRS Issues Reminder: All Gambling Winnings Are Taxable Income

The United States Internal Revenue Service (IRS) has issued a recent notice reminding taxpayers that all gambling winnings, including those from sports betting, horse races, lotteries, poker tournaments, and online casino games, are considered taxable income. The IRS stressed that it does not differentiate between various forms of gambling when it comes to tax obligations.

In the notice, the IRS emphasized that all US residents are required to report their gambling winnings on their annual tax returns, regardless of the source or amount. The IRS clarified that the responsibility for accurately reporting gambling winnings lies with the taxpayer. This includes not only federal tax obligations but also potential state and local taxes, depending on where the taxpayer resides.

Importance of Doing Taxes Right

In addition to reminding taxpayers about their duty to report winnings, the IRS urged bettors to engage only in legal gambling activities. The notice cautioned that illegal gambling can lead to serious criminal charges, including tax evasion and money laundering. The IRS stressed that participants in sports betting must report all winnings, keep records of their gambling activities, and seek guidance from tax professionals to ensure proper reporting and withholding. “Ignorance of the law does not exempt individuals from their responsibilities,” the IRS warned, stating that failure to comply with tax regulations can result in fines, interest on unpaid taxes, and even asset seizure.

The IRS also reiterated that online casino winnings, just like winnings from other forms of gambling, are taxable once the winnings are withdrawn. It noted that the amount of net profit or loss while playing online casino games is irrelevant—any withdrawal of funds is considered taxable income. A common misconception among taxpayers is that they only need to report gambling winnings if they result in a net profit after accounting for losses. However, the IRS clarified that all winnings must be reported, regardless of losses.

Taxpayers can deduct gambling losses, but only under specific conditions. Gambling loss deductions cannot exceed the total winnings for the year, and taxpayers must itemize deductions on their tax returns rather than taking the standard deduction in order to claim these losses. This may not always be the most financially advantageous choice, depending on the taxpayer’s overall deductions. One benefit of gambling with licensed online casinos is that many of these operators automatically withhold a portion of winnings for taxes and provide a Form W2-G, which simplifies the reporting process. This form allows taxpayers to easily report winnings and see if any additional taxes are owed.

Even without a W2-G, the IRS makes it clear that taxpayers must report their gambling winnings. Winnings from unlicensed or offshore online casinos are also taxable, and failing to report them can lead to penalties.

Clear Message from the IRS

For more information, taxpayers can visit the IRS website or consult with a tax advisor. As the IRS warns:

 

“It’s far better to be safe than sorry.”

The IRS notice serves as a clear reminder to US taxpayers: all gambling winnings are taxable, and failure to report them accurately can have serious consequences. With this renewed emphasis on compliance, taxpayers are advised to seek the help of tax professionals to ensure that they are meeting all federal, state, and local tax requirements.