Gambling losses are indeed tax deductible, but only to the extent of your winnings. This requires you to report all the money you win as taxable income on your return. However, the deduction for your losses is only available if you itemize your deductions. If you claim the standard deduction, then you can't reduce your tax by your gambling losses.

1. The way to avoid getting stuck footing the entire tax bill is to document the payouts with 1099s. If you win a big jackpot in a group pull, make sure to gather the other players’ full names, addresses, and Social Security numbers before handing out the money. Then issue a 1099 to each player for their share of the winnings.
2. Jan 31, 2018  If you are wondering how you should declare W-2G handpay jackpots or are curious about other aspects of casino tax law, like how different states tax casino winnings, you will find a lot of value.

Gambling and the Law®: By Professor I Nelson Rose

The Internal Revenue Code is unkind to winners -- and it doesn't much like losers, either. The federal government taxes gambling winnings at the highest rates allowed. So do the many states and even cities that impose income taxes on their residents. If you make enough money, in a high-tax state like California or New York, the top tax bracket is about 50 percent. Out of every additional dollar you take in, through work or play, governments take 50 cents.

Of course, the tax-collector first has to find out that you have won. Congress and the Internal Revenue Service know gambling is an all-cash business and few winners indeed would voluntarily report their good luck. So, statutes and regulations turn the gambling businesses, casinos, state lotteries, race tracks and even bingo halls, into agents for the IRS.

Big winners are reported to the IRS on a special Form W-2G. If winnings are to be split, as with a lottery pool, winners are reported on a Form 5754.

Pooling money to buy lottery tickets is common among employees and friends. But whether there are two or 200 in the pool, there is going to be only one winning ticket, and somebody has to turn it in. If you are that someone, make sure you fill out a Form 5754. If your share of a $5 million prize is $1 million, you do not want to be stuck with paying income tax on the entire $5 million.

Gambling has become such big business that the IRS receives nearly four million Forms W-2G and 5754 each year. This tells the tax-collectors that nearly four million big winners are out there, waiting to be taxed.

But the IRS does not always wait. The government wants to make sure it gets paid. What good does a W-2G do if the winner is a foreigner who is going to be in his own foreign country when April 15th rolls around?

So, the IRS not only wants reports filed, but often requires that a part of the winnings be withheld. As anyone who has a salary knows, withholding also allows the government to use taxpayers' money for many months, without having to pay interest.

The withholding rate for nonresident aliens is 30%. Not coincidentally, the tax rate for nonresident aliens is also 30%. So, if a citizen of a foreign country wins $1 million cash at a slot machine in Las Vegas, he will find he is only paid $700,000. The remaining $300,000 is sent to the IRS. The foreign citizen is unlikely to ever file an income tax return, but the IRS gets paid in full anyway.

Citizens of foreign countries are also, of course, usually taxed by their own governments. So some countries have treaties with the U.S., which protects those foreigners from having to pay the 30% withholding to the IRS.

U.S. citizens and resident aliens have it both better and worse than nonresident aliens. The withholding rate for gamblers living in American is only 28% (it was 20%, up to 1992). Having the IRS take $28,000 out of a jackpot of $100,000 is painful. But, it can hurt even more when tax forms are filled out. There is no 30% maximum tax for people living in the U.S., and really big winners often end up paying a lot more than 28% or 30%.

The one good news is Nevada casinos were also able to convince the IRS that they could not keep track of players at table games. They said that when a player cashes out for $7,000, they do not know whether he started with $25 or $25,000. So it is actually written into the law that there is no withholding or even reporting of big winnings to the IRS for blackjack, baccarat, craps, roulette or the big-6 wheel.

There is another general IRS rule that says anyone paying anyone else $600 in one year is supposed to file a report. The IRS has been going after casinos and cardrooms that run tournaments, forcing them to file tax reporting forms on grand prize winners. Here the IRS has the very good argument that the operator knows exactly how much a player has paid to enter the tournament and how much the finalists are given.

Is there anything a winning player can do to lower the bite of the income tax? And what about those who gamble and lose? Which is everybody, occasionally. The law does allow players to take gambling losses off their taxes, but only up to the amounts of their winnings.

Of course, if you win, say $135,000, you can take off all gambling losses, up to that amount. If you gambled away, say $65,000, you would only have to pay taxes on the remaining, let's see: $135,000 minus $65,000 equals $70,000. The tax on $70,000 is a lot less than the tax on $135,000.

Of course, you have the small problem of proving that you actually lost $65,000. Large winnings may be required to be reported to the IRS; large losses are not.

One former IRS Revenue Officer, who quit government to open his own small tax preparation firm, thought he found the answer. One of his clients won a share in a state lottery: $2.7 million, paid out over 20 years in installments of about $135,000, before taxes. The winnings were reported, but the tax return claimed gambling losses of $65,000. The IRS decided that $65,000 was a lot to lose, and it sent an agent to conduct an audit.

The tax preparer found a man with an extremely large collection of losing lottery tickets and made a deal: he would borrow 200,000 losing tickets for a month for $500. The losing tickets were bound in stacks of 100 and shown to the IRS auditor: 45,000 instant scratch tickets, 5,000 other Massachusetts lottery tickets, and 16,000 losing tickets from racetracks throughout New England. So many losing tickets, that it would have been physically impossible for one man to have made these bets. The New York Times called it, 'one of the more visibly inept efforts at tax fraud.' They pleaded guilty eight days after being indicted.

By the way, the man who rented the tickets was not charged. It's not a crime to collect losing lottery tickets, only to use them to try and cheat the IRS.

In many countries like the United Kingdom and Germany gambling wins are not taxed by the government because these earnings are seen to happen 'by chance' and are not part of a salary unless you declare yourself to be a professional gambler.

This however is not the case in the United States, and all gambling wins are taxed at the highest possible rate by the Federal government, and being a non-US citizen does not mean that you are totally exempt from jumping through a few of the IRS tax hoops.

Here we take a look at what the tax implications for foreign and European citizens are for all casino winnings when visiting Las Vegas and other US casinos.

Taxation on Table Games Winnings

Taxes Rate On Florida Casino Jackpots

You may have heard that winnings on table games in Las Vegas are exempt from taxes. This is not exactly correct as all gambling winnings are subject to taxation, the difference however is that table games like Blackjack, Roulette, Baccarat, Pai Gow and Craps work on the honour system where it is up to the player rather than the casino to report any wins.

While no official reason for this has ever been given, it is probably due to the fact that in general the IRS doesn't believe that table games players can generate enough of an advantage multiplier wise to trigger substantial taxable winnings. That said though, casinos are still subject to regulations that require them to report any single win on 300 for 1 or more odds, or an amount over $600 ‐ but this would mean playing much higher stakes games than most people usually do.

Taxation on Slots and Video Poker Wins

Video Poker, Keno and Slots present a whole different ball game when it comes to taxation due to the fact that players can win up to 1000 times or more than their initial bet thanks to multipliers and progressive jackpots on offer in these games.

For this reason any single win exceeding $1200 on one of these machines will automatically trigger a hand pay which requires a casino employee to visit and unlock the machine. This will cause the generation of a W2-G form (if you are a US citizen) and for amounts over $10,000 the casino will be required to file a Cash Transaction Report (CTR) with the IRS.

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Exemption for Europeans and other Non-US citizens

Generally if a foreign citizen wins a jackpot, 30% of it will be withheld and paid to the IRS. However the US does have treaties with some foreign countries whereby gambling income is not taxable by the United States Government. These countries include Austria, Belgium, Bulgaria, Czech Republic, Denmark, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Tunisia, Turkey, Ukraine, and the United Kingdom.

In the event of a large win, in order to receive a hand pay from the casino that is tax free and not subject to a withholding fee, citizens of these countries will be required to obtain an ITIN-Number. In general the more reputable Las Vegas casinos will acquire this number on your behalf once you have filled in a few forms. Once you have this number you will be able to walk into any casino with your passport, play and if you win claim your tax free payouts.

Some of the countries mentioned above will however require that taxation on winnings be paid directly to their own governments' tax authorities when you return home, while others do not as gambling winnings are exempt from taxes.

In places like Switzerland, canton Zurich collects 35% of their citizens winnings should they be made aware of this income (which is more than the US's 30% withholding tax) so Swiss travellers should always keep their wins private if they do not want to be liable for the taxes.

While most of us never think about taxes at all when enjoying gambling in Las Vegas it is definitely worth being aware of the tax processes and implications involved should you be fortunate enough to experience a large win. Happy Gambling!

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