Do You Need to Declare Betting Income?
When it comes to the legality of gambling across the United States, it is extremely difficult to give a straightforward answer.
The United States consists of 50 different states and each of them has the right to decide whether to regulate the gambling industry or not. The situation gets even more complex as the gambling industry in the USA is regulated at a federal and state level.
Las Vegas is the country's gambling Mecca. Flashy casinos are on every corner, attracting tourists from all over the world. When you head to the casino, you most likely do not think about the taxes you have to pay on your gambling profits. Many countries do not impose taxes on gambling winnings. But is it necessary to declare your gambling income in the USA?
Gambling Winnings Tax in the USA
If you plan to travel to Las Vegas to win some easy cash, you have to keep in mind that gambling winnings, be it cash or non-cash, in the USA are taxable. According to the Internal Revenue Service (IRS), everybody is obliged to pay a 24% tax on gambling winnings. The IRS was established in 1862 by President Abraham Lincoln and ever since the service has been responsible for the taxation of American residents and companies.
The tax on gambling winnings is flat, meaning that it does not take into account the size of the amount you win. To report your winnings, you have to fill the W-2G Form for Certain Gambling Winnings. It is crucial to mention that all winnings generated from different types of gambling activities are taxable, including card games, slots, lotteries, bingo, winnings from racetracks, and sports betting.
The casinos are also responsible for reporting gambling winnings over a certain threshold that varies between the different types of games. For example, if your winnings generated from bingo or slots exceed $1,200, the casino has to report your winnings. With regard to poker, your earnings should be above $5,000. Then, the casino is responsible for reporting your winnings to the IRS.
Casinos are not obliged to withhold taxes or provide players who won big money with the W-2G form. This does not mean that you do not have to pay taxes on your gambling winnings. You have to declare your gambling winnings on your own. An article published on Sporting Pedia explains in detail how to declare your gambling winnings.
Professional gamblers should be informed that their gambling winnings are taxed at the normal effective income tax rate as gambling is considered to be their profession. If you do not reside in the US but you win large sums at a US casino, you still have to pay a 30% tax on your gambling winnings. To declare your gambling winnings, you have to use the 1040NR Form.
The IRS allows players to deduct gambling losses from their gambling winnings for tax purposes. Gamblers are advised to report the winnings and the losses separately instead of presenting a net sum. When you report gambling losses, the amount you declare cannot exceed the total sum of your gambling winnings. For example, if the total sum of your gambling winnings amounts to $5,000, the maximum sum of gambling losses you can deduct is $5,000. Assuming that you lost a greater sum than that, it is on your account. Players have to report gambling losses as itemized deductions on Schedule A.
What Happens If You Do Not Declare Gambling Income?
Some people are not familiar with the taxes they have to pay on their gambling winnings. Others prefer to turn their blind eye to the taxes they have to pay. As we explained above, the casino is not required to give you the W-2G form. But it does not mean you do not have to pay taxes.
You have to report your gambling winnings when you file your income for the year. If you are honest with the IRS, you will be able to deduct gambling losses up to the sum of your winnings. But if you decide to hide your gambling profits, you might be accused of tax evasion and put behind bars.