For example, Gary Bauman mistakenly believed that he was not required to report his $73,733 jackpot because he qualified for a Social Security disability pension.

Unfortunately, many taxpayers and tax professionals mistakenly rely upon myth, urban legend, or just bad information when deciding what to include. district courts have examined this issue and reached the same conclusion-gambling income will be included in gross income. (Footnote 5) Moreover, “It is held that for federal income tax purposes, all wagering gains must be clearly included in gross income”. It includes “all income from whatever source derived, except as otherwise provided by law” (Footnote 4), and there is no legislative exception for gambling income. Step 1: Include All Wagering Gains in Gross Income This article will provide a step-by-step guide for the proper treatment of gambling income. It should come as no surprise then that with such vague instructions, it is likely that the vast majority of tax returns that report gambling income-whether prepared by the taxpayer, a tax professional, or tax software- are prepared incorrectly. This inconsistency is also repeated by every tax software package that the author has personally reviewed. To further complicate matters, the IRS computer matching program, which makes sure that a taxpayer includes all of his gambling winnings reported on Form-W2Gs, completely ignores the IRS-preferred and Tax Court-approved methodology of gambling sessions. (Footnote 1) The IRS instructions say little more than “gambling income” shall be reported as “other income” on IRS Form 1040 (Footnote 2), and if a taxpayer elects to itemize his or her deductions, then “gambling losses” are included on Schedule A (Itemized Deductions) as “other miscellaneous deductions not subject to the 2 percent limitation” but only up to the amount of winnings. 165(d) provide little guidance on the reporting requirements of wagering gains and losses. But exactly how to report this activity can be confusing.Īnd unfortunately, the seventeen words of IRC Sec. With such a dramatic increase in gambling activity in the United States, gambling reporting has also increased. As a matter of fact, in the twenty years from 1991 to 2011, consumer spending on commercial casino gaming grew from $8.6 billion to $35.6 billion-an increase of 314 percent! music ($7.0 billion) industries combined. Although the consumer electronics industry is larger ($186.4 billion), the gambling industry is larger than the cable TV ($97.6 billion), outdoor equipment ($11 billion), U.S.

Gambling is a $140 billion per year industry.

How to report gambling winnings to irs