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Many things in our world can have tax implications. This includes how lucky a person proves to be when they gamble. In today’s post, we will talk about a couple of the big tax issues that come up in connection to gambling.
One such issue is reporting winnings. Gambling winnings are taxable income. So, taxpayers are required to report winnings to the Internal Revenue Service. What if the thing a person wins isn’t money, but is instead some other type of prize, such as a car? In the case of non-cash prizes, taxpayers are to report the prize’s fair market value.
Another tax issue related to gambling is deducting losses. Gambling losses are among the things that taxpayers may be able to deduct. However, there are a couple notable restrictions when it comes to deducting such losses. One is that there is a limit to how much in gambling losses a person can deduct. They can only deduct up to the amount of winnings they had, they can’t exceed this amount. Another is that gambling losses can only be deducted through itemized deductions.
When taxpayers engage in gambling, it can be important for them to stay mindful of these two tax issues. Also, it can be important for such individuals to keep a good record of their winnings and losses. Such records could play an important role for a taxpayer in the event that the IRS contests whether the taxpayer was accurate in their reporting of winnings and their deduction of losses.
Another thing a taxpayer may want to have when the IRS is questioning whether they followed the tax rules related to gambling winnings and losses is quality legal representation. Like other types of tax disputes, disputes with the IRS over gambling-related tax issues can have major ramifications. When dealing with such impactful matters, it can be very important to be properly informed and have access to quality guidance.
Source: Internal Revenue Service, “Helpful Tips to Know About Gambling Winnings and Losses,” Aug. 4, 2017