Jan 29, 2008

Gambling Income- do I pay tax on this???

Our course, the answer is yes. You will recieve a Form W-2G or another reporting of gaming winnings (perhaps a Form 5754 if you receive gambling winnings as a member of a group). The payor should withhold generally at 25% of the winnings.

The income is reported on line 21, other income, on the Form 1040. You deduct the expenses only if you can itemize (i.e. your itemized deductions are over the standard deduction) as a miscellaneous deduction (not subject to the 2% limitation). However, you cannot net the income and expenses and report them on the return. The income and expenses must be reported separately.

Hence, if you do not itemize, it is possible to pay taxes on the gambling winnings. Also, if you put down alot of expenses, be prepared to document these expenses in an IRS audit.

In any case, gambling winnings and losses require a professional preparer in order to avoid many common errors that will get you if future hot water.

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