The continuing expansion of gambling means that financial advisors and tax professionals are more likely to work with clients who must report their betting income each year to the IRS.
For bettors and advisors who should
“For practitioners, it is very important that we educate ourselves or to know when we are unable to support the client properly,” he said. “The taxpayer has to decide if they are starting a new business or they are just enjoying some good quality time, and they have to be able to defend their positions no matter which one they do.”
Since people have gambled as long as they have engaged in any other type of vice, advisors
The rising number of states with legalized sports betting or new casinos is driving more need for tax services involving the burgeoning income. As an industry, U.S. commercial gambling revenue jumped 14% from the prior year to a record $60.4 billion in 2022, according
Some of those gamblers will be finding out in tax season that they have passed a kind of milestone if they get a Form W-2G denoting that they “scored big” enough for a gaming house to report them to the government and send them a record of their income, according to
“This doesn’t mean you don’t have to claim the income and pay taxes on it if your winnings aren’t enough to warrant the tax form,” the blog said. “It just means that the institution won’t send a Form W-2G.”
For the professionals
Gamblers and their advisors will use other criteria than the form to decide whether to count their betting as a business, though. The frequency of their in-person or online gambling, the quality of records such as bank statements or careful logs of the activity and the gross amount of the winnings play a role in the determination.
If the client is a professional, they can deduct any wages, educational materials or other costs as expenses for running their small company, but they “have to abide by the same rules that other business owners have to” in paying “not only income taxes but self-employment taxes as well” and being prepared for any audits, according to Ringbauer. Most professional gamblers classify their income as
“It is purely about the intent. It is very important that they are following the rules and guidelines in order to maintain that status,” Ringbauer said. “If you are a gambler, you have to make sure that you follow those items just like any other business would have to abide by those laws. They must follow IRS guidelines in order to qualify for taxation purposes.”
Gamblers may itemize a deduction up to the value of their winnings on Schedule A. For all itemizing gamblers, the law
“Congress may extend it further. In the meantime, professional gamblers’ winning streak apparently has come to an end,” they wrote in the article, which was titled, “Tax Reform Law Deals Pro Gamblers a Losing Hand.”
For the amateurs
The higher standard deduction stemming from that law is prompting many fewer taxpayers to itemize, so amateur gamblers will likely pose fewer complexities in their annual returns. If they choose to claim a deduction for losses up to the level of the additional income from bettings, they still “must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses,”
In filing with the agency each year, gamblers add the amount from any Form W-2G to any other winnings on top of their overall income, Ringbauer noted. Due to the self-employment taxes paid by business owners, amateur gamblers in some cases may give Uncle Sam a lower amount than if they had classified themselves as professionals.
“If you are just a casual gambler and you happen to win $10,000 in Vegas, that would be subject to ordinary income taxes,” Ringbauer said, describing the choice of being amateur or professional as one with trades and benefits on either side.
Regardless, advisors and tax professionals should remember that there is “a lot of misinformation out there,” so they “have to help our clients understand the consequences of being too zealous in their activity,” he noted. For instance, they may need to offer clients a gentle reminder of the rules for additional income besides the wages at their day job.
“You as a taxpayer are required to report your worldwide income,” Ringbauer said. “Failure to do that will have significant penalties. So remember you are signing your tax return under penalty of perjury.”
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