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Gambling Winnings and Taxes

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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!

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BECKY SMITH

Becky Smith has a rich background in music, business, accounting and equestrian studies—just some of the experiences and interests that she brings to the table in her role as blogger here on Saratoga.com. Her passionate love for all equines has drawn her close to the species, in an intuitive way that helps her truly understand the horses she encounters in her various volunteer and professional efforts. Her passion started at a young age when she relished jumping vegetable crates with her stick horse on the front lawn of her family’s farm. It wasn't long before she graduated to riding a real, live horse named Candy Lane. From there she moved up to showing her pony, Flash and horse, Karib. Becky is fascinated with all aspects of the horse world. She has experience with western, English, jumping, dressage, Centered Riding and gymkhana—and every day discovers new disciplines and breeds, adding to her storehouse of knowledge and enthusiasm.

Becky has worked in accounting for over 10 years, and envisions growing her business, Equiccount, to serve and advise those who, like herself, love horses—but who may not have her business acumen. Her connection to the horse and understanding of horse people sets Equiccount and Becky apart from other business advisors who may not get the spirit of equine business with as much depth. Many accountants love accounting. All horse people love horses. Becky feels passionately about both, and so brings fresh insight to the intersection where the two worlds meet. Her blog will help readers grow their own equine businesses, while gaining knowledge of basic business and accounting principles as taught from a compassionate standpoint. In other words, she gets it that readers may be bored to tears by the nuts and bolts of accounting and business. And that's OK, too: as long as she gets it, advisees can hand the reins to her and know that they'll get a smooth ride, and clear every obstacle on the course.