Gambling can allow you to have easy money but do not forget the fact that this is a taxable income. Therefore, you must know the tax rules before you start calculating your winning amount.
However, your tax obligation will vary on the size of the prize, where you play and what you do for a living other than gambling. There are also different types of tax forms.
Ways of taxing
There are different ways followed by the governments of different countries to tax gambling winnings. According to the federal income tax process, this is not progressive. This means that you will need to pay 25% of your winning amount to the IRS irrespective of how small or large it is. For larger wins, you will need to:
- Provide your Social Security Number to the casino and
- Fill out IRS Form W2-G.
Look at this site to report IRS about your winnings.
Claiming your gambling winning
When you claim your gambling winning, you will need to follow these processes:
- If you are not a professional gambler, you must report IRS about it as ‘other income’ on line number 8 of the Schedule 1 and
- On line number 7a on Form 1040 of 2019.
To deduct gaming losses and gambling expenses, itemize it on line number 16 of the 2019 Schedule A as ‘Other Itemized Deductions.’
Professional gamblers need to use Net Schedule C because they visit more and it is their living, Therefore, it is subject to self-employment tax.
Reasons to tax gambling winnings
It is no surprise that gambling income is taxed by the governments of all countries, though the laws related to it may be different. This is because:
- This industry is vast and
- It generates considerable amount of profit.
Taxing such income helps the economy of a country a lot.
Summing it up
In most of the countries, gambling income is taxed at the rate of 25% flat of the amount you won. However, governments can implement both state and central tax laws as applicable. In few occasions, governments may practice backup withholding tax law and deduct 28% of the wins instead of 25%.