You may dream of winning the lottery or hitting the jackpot. But do you know how your winnings should be handled on your tax return? Here’s how.
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Which winnings are taxable?
Large or small, all winnings from lotteries, sports, racing, bingo, cards, slot machines, game shows and more must be reported to the IRS and state governments. All winnings from the US and foreign countries, as well as multi-national and international gambling, are taxable.
How do I report my winnings?
You should report the gross amounts you received. If your winnings are high enough they will be reported on a W-2G. Different types of winnings have different minimum amounts for issuing a W-2G, but the minimum amount you have to report on your tax return is $1.00, even if you don’t have a W-2G.
The IRS withholds 24% of lottery winnings but it may not fully cover the taxes owed. Tax payments are based on the tax rate you end up in. The highest federal tax rate is 37%, so you could owe at the end of the year. To avoid this, you can send an estimated tax payment to the IRS when you receive your check. Don’t forget state taxes. Most states tax gambling winnings as income.
Any deductions allowed?
You cannot net out your winnings with your losses. You also cannot deduct the expenses you incur to gamble like:
- cover charges at betting venues
However, you can deduct all losses up to winnings on your return. The losses are a miscellaneous itemized deduction, not the miscellaneous deductions that have been suspended under tax reform, but part of the miscellaneous deductions still allowed. Keep in mind, the standard deduction amount is very high and most people don’t qualify.
Why Jackson Hewitt®?
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