What Your CPA Wants You to Know
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What Your CPA Wants You to Know
62. Gambling Income & The Tax Implications
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Have you ever hit a jackpot and ended up with less than you expected after taxes? This episode is all about gambling income and the tax implications.
We discuss the crucial yet frequently overlooked aspect of gambling winnings and losses. We'll guide you through everything from 1099 forms handed out by casinos for those wins to deductions for your losses, which are important during tax season.
We see all too often our clients owe unexpected taxes when they have gambling income, which is why this episode will be so helpful!
Remember, a little preparation and awareness can save you from the gamble of an unexpected tax bill.
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Tax Implications of Gambling Income
Speaker 1Moral of the story here is you don't want to file a tax return with gambling income and forget to put gambling losses on it .
Speaker 2Welcome to what your CPA wants you to know .
Speaker 1Tax and accounting help can be expensive , so we've created this podcast to help guide you through it all and make you feel like you have a CPA in your back pocket .
Speaker 2I'm Carson Sands .
Speaker 1And I'm Terrin Sands .
Speaker 2I'm a CPA with over 10 years of experience helping people start and grow their businesses .
Speaker 1And I'm an MBA with a specialization in marketing and entrepreneurship . Taxes suck and we want to make sure you don't pay more than your fair share .
Speaker 2We're here to share everything your CPA wants you to know .
Speaker 1In a fun and easy to understand way .
Speaker 2Let's get started .
Speaker 1Let's do it . Are you a gambler ?
Speaker 2Yes , I am .
Speaker 1If you like to gamble and sometimes you make a lot of money this episode is for you .
Speaker 2So when you hear us talk about how gambling can be problematic for tax purposes , don't think it's that we're casting moral judgments on you . I love to gamble , I love to play Texas Hold'em with my friends and I like to go to the casino even , but there are some issues that come up from gambling and they are tax related .
Speaker 1And that's what today's episode is going to be about . We often because we're in Texas and a lot of our friends , like to drive up to Oklahoma to go gambling . We see gambling income on tax returns a lot .
Speaker 2So let's make this episode super short , because I know you need to save a lot of time so you can head on up and do some gambling , all right ? So the problem with gambling is that when you hit it big , you get a 1099 from the casino . It's very similar to 1099 you receive for contract work that you do or anything like that .
Speaker 1Because the IRS is not going to let you make any money without paying taxes on it . So they've set up the system so that they can know if you make a lot of money gambling .
Speaker 2That's right . And that casino doesn't even get to deduct that money that they have to pay you , unless they give you that 1099 . So I promise you they're going to make sure you get it .
Speaker 1Absolutely .
Speaker 2So you can't hide the fact that you won money from the IRS . Now you know what's not on the 1099 ? Gambling losses . So this puts the burden on you . To keep track of your gambling losses , you can have some kind of a notebook where you keep track of it , a spreadsheet , or if you are a big gambler and you have one of those membership cards and you use it every time you use the slot machine or whatever , then your membership will track your wins and your losses and they'll give you a little form each year . So that can be pretty handy .
Speaker 1Moral of the story here is you don't want to file a tax return with gambling income and forget to put gambling losses on it .
Speaker 2Right , and if you leave the gambling income off completely , which people do all the time , then the IRS will assume that you won all that money on the 1099 and lost no money , which has never happened to anybody . But that's what they're going to assume , unless you tell them otherwise , and so you'll get some really nasty letters from the IRS saying that you owe a ton of money . You have to be like no , no , no . Yes , I won 60,000 , but I had already lost 70,000 . And it'll take you a long time to explain that .
Speaker 1Hey there . Have you ever thought of setting a meeting with your CPA to discuss personal finances ? If you have , we have the perfect thing for you . We created a four week workbook to walk you through everything your CPA wants you to know about personal finances . So we're going to dive into personal finances with budgeting , savings , retirement , calculating what you have now and what you need to get you where you want to go , setting financial goals and life insurance . This also includes four weeks of email support from us when you buy the workbook , because we want you to pick it up and hit the ground running . Check the show notes for the link to purchase and use code podcast when you check out for a discount . Now back to the show .
Speaker 2Here's something that's really important , though Even if you have all of your gambling income and your gambling losses , the gambling losses are reported on Schedule A itemized deductions . So if you go back to episode 59 , where we talked about Schedule A itemized deductions , I promised this gambling episode was coming . Well , the gambling income is reported as ordinary income . There's no special itemized income . So now let's say you made $25,000 in gambling income . Well , you had at least $25,000 in gambling losses . Doesn't matter if you had more , because you can only deduct up to the amount of winnings that you had .
Speaker 2But still now we have a problem . If you're a renter , you don't have a lot of mortgage interest or charitable contributions or real estate taxes paid in . You are going to be using the standard deduction anyway , and with $25,000 in gambling losses , you're still using the standard deduction . So now you have an extra $25,000 of income on your tax return that you have to pay tax on , and you don't have any additional deductions , even though you had the gambling losses . So this is a situation where you don't even get to take those losses against your income . So you want to keep that in mind as you're gambling . Just know that even if you don't actually win any money , you could pay a tax hit on those winnings .
Speaker 1That seems very unfair .
Speaker 2It's not very fair , but the only way around . That is if you're a professional gambler . It's really hard to prove that you need to do it a certain number of days per year . But there are people that are professional gamblers People playing the slots I don't think they count . But if you're a professional poker player or something like that , you can deduct your losses directly against your income on Schedule C . This doesn't apply to most people . For most of us , you're going to get hit with the income without getting much or all of the benefit of the losses . So just keep that in mind and make sure you set aside some money to cover the additional taxes .
Speaker 1What we're seeing is people getting these 10.99 from Chocotaw or whatever , so they might be $5,000 . Nothing huge or life changing , it's just they had something and then they're surprised by how much it affects their taxes .
Speaker 2Right Now . Let's say you already have more itemized deductions than the standard deduction every year , not taking into account any gambling losses . Well then , this episode it's not going to really affect you very much because you're already using the itemized and those gambling losses will just get tacked on top of the other itemized deductions that you have and that will offset the gambling income . So you won't be any worse off . But as we mentioned on episode 59 , only about 10% of people are itemizing deductions and the other 90% are using the standard . So anybody in that situation is going to be negatively impacted by the gambling winnings , even if you lost more money than you won .
Speaker 1So what you're saying is it's very unlikely that you're going to get to use your losses to offset your gambling income .
Speaker 2That's right Now . If you have a huge amount of gambling income and a huge amount of gambling losses , you would still use them , but you're still not coming out ahead , because you were going to get a $27,000 standard deduction , and so you might get a $60,000 gambling loss , but you're still increasing your income by $33,000 . In that scenario , Yep . Either way you look at it , and again that's money that you didn't actually make .
Speaker 1So a very , very expensive hobby .
Speaker 2Yes , so be careful and make sure you win a lot , because you're going to need to cover that tax bill .
Speaker 1And if this has happened to you , we see it all the time . That's why we felt it would be a really good episode because , yeah , we like to go have fun and go to Vegas or whatever and gamble , but a lot of people just don't think about taxes when they're like having fun gambling .
Speaker 2Right , and they think that if they lose as much money as they win , that there's no chance that they're going to pay any taxes on it . But that's not true .
Speaker 1Exactly .
Speaker 2Well , that's all we have on gambling . So go hit those slots and win some money .
Tax Tips for Gamblers
Speaker 1And make sure to send this episode to all of your gambling friends .
Speaker 2Yes , they're probably not going to listen to it because they're too busy losing money .
Speaker 1But for real . If you know anyone that does enjoy gambling and often makes income on that , definitely send this episode their way . We would really appreciate it and until next time , thank you so much for listening to what your CPA .
Speaker 2Wants you to Know Podcast . This podcast is intended to provide accounting and tax information for educational purposes only . All tax situations are unique and should be handled with the assistance of a tax professional .