Gambling Taxes – How to Calculate It by Evaluating Your Winnings and Losses
Like other sources of income, gambling is also subjected to taxes in order to fund for public expenditures. Gambling income as well as non-cash prizes you win in gambling is considered taxable by the governments of various countries. There are some particular rules and regulations when it comes to paying taxes on gambling and their recordkeeping.
The rules require you to report all about your gambling winnings to your country’s federal government. It is done by using W-2G forms which not only report your total sum of winnings but also the quantity of withheld tax. Some of the popular gambling winnings are bingo, casino games, lotteries, betting pools, raffles, sweepstakes, etc.
Usually, 25% tax is applied on gambling winnings, but taxes on lotteries, pools and sweepstakes can be withheld, if the winnings exceed certain amount decided by the government. In case, you win a non-cash prize, you have to pay tax based on its market price.
Suppose that you have won a sizeable amount of money in bingo in an online bingo free money/best online bingo gambling club. If you are paid after deducting total amount of tax applied on your winnings, then they will provide a receipt and a legal certificate showing deducted sum of money and details regarding your winnings and the sum you were paid. You can use this certificate to reduce taxes applied on your gambling income.
Directions of paying gambling taxes
Here are some directions you need to follow, so that there is a fair transaction of taxes between both the parties:
- First of all, you have to calculate the total sum of money you won in gambling be it hard cash or non-cash prizes at their market values.
- Then, you must mention this whole evaluated amount in the tax form provided by the tax authorities. Make sure that nothing is left out from being included in the tax amount.
- You must mention deductions made in your gambling in the form and show it in form W-2G.
- There are regulations regarding gambling losses and accordingly, a certain percentage of your income is taken away to reduce the taxes.
How to deduct your gambling losses
Your gambling losses can be subtracted from the tax amount if you present the list of your deductions in parts to the authorities. However, remember that you can only deduct your losses based on your winnings. Instead of presenting net amount, you should present the amount of your winnings and losses individually.
Gambling losses are considered as miscellaneous deductions. Therefore, you don’t need to follow the 2% limit rule and can include all losses in your amount. Also, you can withhold your taxes according to your winnings and gambling type. Normally, 25% of total sum is withheld, but in some cases 28% is withheld as a backup.
You should keep a gambling journal in order to record all of your winnings and losses and documents related to them like authentic certificates, receipts, tickets, statements, Form W-2G, etc. it is important to provide evidence for proving the legitimacy of your winnings and losses, especially when you want to remove the amount pertaining to losses.
You are required to keep track of following things to record your respective wins and losses:-
- Date and type of the gambling
- Details about you and the organization or event where you gambled like name, address, contact number, etc.
- Details about others present during your gambling activity.
- Individual sum of your winnings and losses
Last but not the least; your gambling income would be taxed according to your usual rate of income tax, if you were a professional gambler. You just have to follow the rules regarding taxes applied in self- employment.
Also, apart from using tax forms to report your gambling income, you can use online means to present it to the authorities. There is software that handles procedure of tax preparation, provide you with suitable online forms and keep a check on your mistakes.