The euphoric feeling of winning money at the casino is indescribable. However, if you don’t report your winnings properly to the state and the Internal Revenue Service, you’ll be feeling the opposite of the initial joy if you get caught and penalized. It doesn’t matter if you win $10 or $10,000, every cent must be reported on your state and federal tax returns.
Here’s a primer on the basics of reporting your California casino winnings so you don’t get blindsided when the tax man cometh.
You must report all of your winnings
Both the Internal Revenue Service and the state require that you report all your gambling winnings, including non-cash ones. This goes for prizes like vehicles and luxury trips. You must report the fair market value of those non-cash items.
While both federal and state governments stipulate that your winnings from “lotteries, raffles, horse races, and casinos” are taxable, there are some exceptions. So, while you have to report all of your winnings, in a few cases, they may not be subject to taxation.
In California, the state does not tax the California Lottery or Mega Millions. However, the state’s franchise tax board does withhold federal taxes from lottery prizes. In short, if you win the big in the state lottery, the IRS will still get a cut of your bounty.
Now if you buy a lottery ticket in another state and win, the California exception does not apply. Your lottery earnings from other states are taxable in California.
What about losses?
Per the state, in general, “you cannot deduct gambling losses that are more than your winnings.” For example, if you win $9,000 but lose $10,000 you can only deduct $9,000.
What happens before you leave the casino?
When your luck hits while you’re in the casino, you won’t have to worry about reporting your winnings until it’s time to file your taxes. However, if you hit a big jackpot, it’s a different story. The casino will take 24% of your winnings on behalf of the IRS before you leave the premises if you meet the following conditions:
- You win more than $5,000 after your wager is subtracted. This also applies to poker tournaments, horse races and other parimutuel pools, wagering pools, sweepstakes and lotteries.
- Your winnings are at least 300 times the amount that you bet.
According to the IRS, these conditions do not apply to winnings from keno, slot machines and bingo or “winnings from other wagering transactions if the winnings are $5,000 or less.” When the casino collects the 24%, you must present your full name, address and social security number plus show two forms of ID. Tribal casinos will accept tribal IDs for members of the tribe.
How do you report winnings?
First and foremost, keep an accurate log of all your winnings. When you file your federal taxes, you must report your winnings on the Schedule A attachment to your Individual Income Tax Return (IRS Form 1040 or 1040SR).
Additionally, you must file a Form W-2G if you meet the following conditions specified by the IRS. The gambling operator will provide you with the form.
- The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine;
- The winnings (reduced by the wager) are $1,500 or more from a keno game;
- The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament;
- The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are:
a. $600 or more, and
b. At least 300 times the amount of the wager; or
- The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding).
On the state level, report your winnings on your California return. Your losses are deducted from your winnings as an itemized deduction.
Make sure to contact a licensed CPA if you have any questions or concerns about reporting your gambling winnings.