A former co-worker of mine has a son who was asked to tell his teacher what the four seasons are.
He said, "Summer, Fall, Winter and Tax Season!" When you are an accountant who prepares tax returns, this is so true.
Many people do not realize all of the sources of income that are fully taxable. This can be quite the shock when it comes time to file their tax returns. Gambling winnings is a source of income that must be reported on your tax return. Any money you win from lotteries, raffles, horse races, or casinos is taxable. I can hear some of you saying "But can't we claim our losses?" While this is true, it is only true for those who itemize deductions. If you have no idea what "itemize" means, chances are good that you will not be able to claim your losses. Even if you itemize, you cannot deduct more losses than the winnings that you report on your tax return.
Some gambling winnings are subject to Federal income tax withholding. Each facility (casino, racetrack) handles how they pay out these winnings differently. Also, this generally does not include state income taxes. So, you will need to plan for this. If your winnings are subject to Federal income tax withholding, a payer (such as a casino or racetrack) is required to issue you an IRS Form W-2G. This piece of paper is similar to a W-2 only it reports your winnings not your salary.
Other gambling type income that you may not have considered is the fair market value of prizes such as cars and trips. My motto, as harsh as it may sound, is: "If you can't afford to pay the taxes on the value of the prize, you shouldn't enter the contest."
As a reminder, if you haven't already filed your tax returns, there are only 9 days left to tax season. Due date is April 15, 2010.
Good luck! I wish nothing but refunds for all of you!