Some people make a very good living as professional gamblers. Some just like the occasional trip to Vegas. But whether you consider yourself a novice or a pro, there are some financial consequences to winning even a little. And regardless of your game of choice, you should never bet against the IRS; the house will win and you'll lose more than your shirt.
When you're caught up in the excitement of games of chance, particularly if you're on a lucky streak, it's hard to focus on your reporting responsibilities. Nevertheless, this won't prevent the IRS from taking an interest in your earnings and demanding a piece of the action. Before you file your next return, consider any extra income that you may have earned from cutting cards or a trip to the track.
A common misconception is that you only have to report revenue earned from a regular job. The reality is that any money you bring in - regardless of the source - comes with taxable strings. If you're changing your cash for chips, you should go into it knowing that anything you win will need to be reported. While a good reporting rule of thumb is any amount totaling $600 or more, you're better off reporting any earnings you clear.
Evening the Odds
One of the perks to gambling on a serious level, especially if you rely on this as your main source of income, is that the IRS allows you to take the good with the bad. While you are required to report winnings, you're also permitted to take deductions for losses. An important detail to keep in mind is that you can't simply claim losses; these cannot exceed your total profits.
How do you report your winnings? When you prepare your tax return, you'll indicate your totals under "Other Income" on your form (the type of form you'll be using may vary, depending on your financial circumstances and your business classification). It may be helpful for you to keep a record of your earnings to ensure that no amount gets missed when you're completing your return. Make sure your numbers are correct and double-check your total income to avoid a reporting error.
High (and Ill-Advised) Stakes
Some people take the opinion that what the IRS doesn't know won't hurt them. The truth is failing to report income will hurt you. Typically, casinos will require you to fill out a W4 for winnings above a certain amount. They will report this information to the IRS and if your numbers don't line up, you'll be asked to explain...and pay up. In the event that your gambling adventures happen outside of official gaming establishments and far from the eyes of IRS agents, you should still plan on reporting. If, by definition, the gambling venues are not operating legally, you can face more than a tax liability. Worst case scenario, the IRS can hit you with charges for failing to report income earned from illegal activities.
Hedging Your Bets
When the IRS catches up to you after reporting errors, unintentional or otherwise, don't expect any leniency. You'll be instructed to pay the applicable amount of tax without delay. If you're already facing a tax debt from such a scenario, or realize that you should be expecting an IRS notice, talk to a licensed tax professional at once. Facing such a tax concern can be vastly simplified with a professional who has experience in handling these types of IRS issues. And you can bet that a quick resolution to your tax debacle will be preferable to a protracted fight with the IRS.