Don't Gamble with the IRS

Trips to Las Vegas and Atlantic City are lots of fun, but woe the man who wins and ignores the tax implications.

First, the bald facts. The Internal Revenue Code requires all U.S. citizens to report their gambling income on their tax returns, regardless of location. In other words, it doesn't matter if you beat the house in Atlantic City, NJ, Reno, NV, or Monte Carlo, Monaco. (Compare with other countries like the United Kingdom, where there is no tax on gambling income). Furthermore, most tax payers are not allowed to "net" their gambling income. That is, they cannot combine their gains and losses for the year and then report only the total.

Instead, a tax payer has to add the winnings for each gambling session and report that total as income. A tax payer can report the winnings on Line 21 (Other Earnings) of the Form 1040.

Gambling losses can be deducted, but only to the extent of winnings reported in the year.

There are two key steps a tax payer can take from running afoul the IRS when gambling:

1) As a general rule, a tax payer should withhold 25 percent of winnings.
2) The tax payer should keep a ledger of winnings and losses for each gambling session.

If you have gambling winnings or losses, I urge you to consult a professional when preparing your taxes.