When it comes to games of chance, we often think of the state lotteries along with the Powerball and Mega Millions lotteries. Recently, I saw an article on CNBC.com where someone had calculated that winning the recent Mega Millions jackpot at $323M and taken a lump sum payout of $199M, that the federal taxes would come in at around $50M and additional state income taxes of up to 17% depending on which state you lived in that had a state income tax.
You don’t necessary have to win a lottery, raffle, at a casino, or at the race track to win a game of chance. There are countless game shows to chose from.
So what you know about winning the lottery, game shows, casino winnings, or racetrack winnings? To begin with all income from gambling or game of chance has to be reported a income under “Other Income” on the Form 1040. Winnings are reported on Form 1099G.
What make game of chance unique is that you can deduct game of chance (gambling) losses on Schedule A (Itemized Deductions) as long as you can prove your losses should you be audited using receipts and non-winning tickets.
If you should ever win, you can deduct the losing tickets as long as you have copies of the tickets or proof of the losing tickets that you purchased but didn’t win. Additionally, if you win expect to pay federal and state taxes on your winnings.
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