Another thing to consider is the tax liability of your winnings. If your gaming earnings are represented on a W-2G, you have the option of having taxes withheld at the time of payment. This is advised, especially if the winnings are substantial, to avoid owing money when you file your personal tax return for the year.
If your winnings are not reported to you on a W-2G, and if you predict that your net winnings for the year will be impactive from a tax point of view, you may need to make an estimated tax payment during the year to avoid a penalty when you file your return in April. The form used for estimated tax payments is a ES.
Professional gamblers can net their net their wins and losses for the year. However, the vast majority of gamblers and will be filing as recreational gamblers. Their losses must be reported as an itemized deduction on Schedule A. More about being a professional gambler below in the article.
Even if you gamble online, and the site is located in another country, you still have to pay taxes on it. Internet gambling is unregulated in most parts of the country, but taxes are still due to what the government deems as illegal income. In other words, if you win your wager at an online sportsbook, with a local bookie, or in another country, you have gambling income. That income is required to be reported.
When the wager is won, it counts as income. Few gamblers know this, but the Tax Code requires filers to record their wins and losses by session. If you use this card every time you gamble in the casino, your wins and losses will be automatically tracked for you. At year-end, the casino makes a report available to you with all of the pertinent tax information. The net amount being the amount you profited or lost from your gambling wagers or activity.
You will need to calculate your winnings and losses separate, with both numbers going in different spots on your tax form. The losses are reported as an itemized deduction, which is reported under Schedule A. You may not think that there is much of a difference between this and putting down the net result, but that is a major mistake.
Gambling income or losses increase your AGI. This can limit your deductions in other areas, like when it comes to medical expenses or other itemized deductions. The rules and reporting methods for professional gamers are different than those for the casual gamer. A professional gambler is viewed as being engaged in a business and as such, reports the gaming activity on a Schedule C as part of the form There are few factors that distinguish an amateur from a professional sports bettors.
The burden of proof is on the gambler to prove this status. The manner in which the gamer carries on the activity is considered; is it a studied, scientific approach using the same forecasting as used in a regular business. Below are other important considerations that lead to this determination:. There is a possible benefit of being a professional gamer from a tax point of view.
In addition to deducting your gaming losses, you can also deduct any ordinary and necessary business expenses needed to pursue the endeavor. This might include your computer, internet fees, office supplies, research materials, travel, business meals, and telephone.
As with any other business, you must have proper receipts and documentation to support the expenses you are claiming. Reporting your gaming income on a Schedule C, eliminates this roadblock. The downside of a net gaming profit on a Schedule C is that the income is subject to self-employment tax in addition to the normal income tax.
Even with the additional expense deductions, it may not end up to be worth it. This is something that needs to be analyzed carefully. Just keep in mind that the IRS takes a very hard look at taxpayers claiming to be professional gamers. You may really have to step up your game to qualify.
As stated above, underpayment of income tax may result in penalty and interest being charged on your return. Many other components on the return are factored into whether or not you will owe a penalty so you will have to look at your return uniquely. They are usually only set in response to actions made by you which amount to a request for services, such as setting your privacy preferences, logging in or filling in forms.
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