[Note: I just realized my blog commenters are required to submit an e-mail address. Nonsense. ‘Tis no longer. Now, I simply must approve your comments before they appear. As long as it isn’t spam or obviously inappropriate, we’re cool.]

• Gambling Winnings 1040 Line 21 1040
• Gambling Winnings 1040 Line 21 Instructions
• Gambling Winnings 1040 Line 21 Form
• Gambling Winnings 1040 Line 21 Schedule

Recently, I have been preoccupied with state tax issues, and rightfully so. After all, we are anxiously awaiting New Jersey Governor Chris Cristie to sign into law legalized intrastate internet gaming. At that time, I expect us to have a much clearer picture of the law’s impact on the online poker community. In the meantime, let’s jump back to the federal side.

The winnings reported on line 21 of the Form 1040. L You must be able to substantiate any losses claimed. Caution: Do not net winnings and losses. You cannot subtract your losses from your winnings when reporting your gambling income. The total income is reported on Line 21 of Form 1040 and losses (up to the amount of winnings) are claimed by itemizing deductions on Schedule A. You include $700 on Form 1040, Line 21, as “Gambling Winnings”. You cannot net the amounts and report $100 on your 1040 tax return. If you are able to itemize your deductions on Schedule A, you take a deduction for the $600 in “gambling losses.” You can only claim gambling losses up to the amount of your gambling winnings.

Your winnings and any tax withheld may be reported on W-2G, depending on the amount you won and the type of gambling, but the full amount is taxable regardless of whether you receive a W-2G; you may deduct gambling losses up to the amount of your gambling winnings, but you must list all of your winnings on Line 8. Regarding any lottery winnings, you are required to report the full amount of your gambling winnings for the year on Form 1040 and you do this on Line 21. The lottery payer may send you a W2-G Form that shows the amount of your gambling winnings and any tax that has been withheld. I entered my 1099-MISC for prize winnings (a scientific award), but it shows up on the 1040 form line 21 as Gambling Winnings. How can this text be corrected? Delete the original entry. And make a line 21 entry this way. You can report it as other income on Form 1040 line 21.

A quick refresher:

“Professional” gamblers report gambling winnings and gambling losses on Schedule C, Profit or Loss From Business, of the Form 1040. The resulting net winnings amount, if any, is reported on line 12 of the 1040 as business income. “Recreational” gamblers report gambling winnings on line 21 of the 1040, and report gambling losses, up to the extent of gambling winnings, as itemized deductions on Schedule A of the 1040.

I covered the primary tax implications of “professional” gamblers during my discussions of the self-employment tax and travel and entertainment expenses. Let’s turn to “recreational” gamblers.

Suppose you have a full-time job, and play online poker approximately twenty hours a week. When you file your 2010 tax return, it’s likely you report as a recreational gambler. As a diligent taxpayer does, you properly document all poker “sessions.” Your results from 2010:

Total winnings =$42,354.00. Report on line 21 of the 1040 as “Other Income.”

Total losses = $16,213.00. Report as an itemized deduction on line 28 of Schedule A.

Why are these items listed separately, and not simply netted, like they are for professional gamblers? Several reasons:

1. Itemized Deductions v. Standard Deduction

On line 40 of the 2010 Form 1040, you report either itemized deductions or your standard deduction. In general, your federal income tax will be less if you take the larger of the two. To ascertain your itemized deductions, complete Schedule A. The standard deduction is a predetermined amount based on your filing status.

Suppose the standard deduction is greater than your itemized deductions. In that case, your gambling losses are considered part of your standard deduction, and you essentially lose out on the gambling losses.

2. Adjusted Gross Income

Several tax items are tied to Adjusted Gross Income (AGI), which is listed on line 37 of the 1040. Because recreational gambling winnings are included in AGI, but gambling losses are not, the AGI amount is higher, as compared to when net gambling winnings are included in the AGI (which is the case for professional gamblers).

An inflated AGI can further limit a taxpayer’s ability to take other deductions. Medical expenses, an itemized deduction, can be deducted only to the extent they exceed 7.5% of the taxpayer’s AGI. For example, if a taxpayer has an AGI of $100,000, medical expenses can be deducted only to the extent they exceed $7,500. Another significant deduction tied to AGI are miscellaneous itemized deductions, which can only be deducted to the extent they exceed 2% of AGI.

3. Alternative Minimum Tax

The Alternative Minimum Tax (AMT), if applicable, requires a taxpayer to pay more in tax than he would otherwise. It was enacted to prevent taxpayers with high incomes to use so many deductions resulting in little or no tax. Indeed, the U.S. Treasury expects more and more taxpayers to be subject to AMT over the next few years.

AMT is imposed on a taxpayer if the “tentative minimum tax” exceeds the regular tax, and the taxpayer then must file a Form 6251. AMT is based on a different measure of income than regular federal income tax is. This different measure is called “alternative minimum taxable income,” and includes, among other items, AGI.

Gambling Winnings 1040 Line 21 1040

In general, the greater a taxpayer’s AGI, the greater “alternative minimum taxable income” is, and accordingly, the greater is likelihood the dreaded AMT bites. All else equal, a taxpayer has a lower AGI if reporting as “professional” gambler than if reporting as a “recreational” gambler. Clearly, this result does not work in the favor of the “recreational” gambler.

Final note: Don’t conclude from this discussion that filing as a professional always generates a lower tax bill. Professional gamblers, unlike recreational gamblers, are subject to a 15.3% tax on self-employment income up to $106,800 for the 2010 tax year (note: for the 2011 tax year only, the SE tax is 13.3%). Furthermore, each taxpayer’s situation is different; whether you are a considered “professional” or “recreational” gambler under the Internal Revenue Code is a facts and circumstances determination.

Are online gambling winnings taxable? Yes, whether you gamble at land-based or online casinos, the money you earn is subject to federal income tax. Known as gambling income, the money you earn from wagers and bets as well as lotteries, sweepstakes, etc. all must be taxed.

Gambling Winnings 1040 Line 21 Instructions

In some cases, you will be provided with tax forms that must be turned in to the federal government. The full amount of the gambling income minus the cost of the winning bet will be included on this form. Whether you receive this form or not, it’s important to know your responsibilities when it comes to filing income taxes.

The process of handling gambling taxes is not difficult if you know what to do. With this in mind, the OUSC team created this quicktax guide to help US players report their online gambling income.

Do US Players Have To Pay Taxes For Online Gambling?

So, if you enjoy online gambling at sites like BetOnline or Bovada Casino, do you have to pay taxes? When you choose to gamble online, the money you earn is still taxable. Even if the site is located in another country, you still have to pay taxes.

Online gambling is unregulated in most regions of the US, but taxes must still be paid. Just because you do not receive tax forms, does not mean that your winnings are not taxed.

To the IRS, it does not matter where the money is either. If you have funds in your online casino account, even if it’s an offshore site, it’s taxable. When dealing with online gambling earnings, it’s important to review this information with an accountant to ensure you pay the right amount of taxes owed.

Below you will find a list of gambling activities that the International Revenue Service considers taxable:

• Prizes
• Private Party Games
• Tournaments
• Scratch Off Tickets
• Other

How Do You Report Gambling Winnings?

The way you report your gambling activities will be dependent on how you win. If you receive a Form W-2G, then this is what you will turn in when filing taxes. Taxes must be filed before April 15th or you must ask for an extension. You will turn this form in as you do your other tax forms for employment to an accountant or tax filing company.

If you do not receive the W-2G form, then you will need to fill out a Form 1040, adding the winnings to Line 21 of the form. The full amount of gambling winnings will be placed on this line.

When filling out the 1040, you will need to configure your losses as well. The expense you had for bets, wagers, etc. will need to be deducted as an itemized deduction. This is done on the “Other Miscellaneous Deductions” line of Schedule A form. This will help to lower the tax amount paid on your total gambling income.

What Types of Records Do You Need?

Gambling Winnings 1040 Line 21 Form

The information you record while enjoying online gambling can be used during the filing process. It’s important to maintain a log or diary of all your losses and winnings. Keep in mind the following information:

• Dates: You will need to record the date and type of activity completed, including wagers and winnings.
• Location: List the name and location of the gambling facility. In the case of online gambling, this would be the website, such as MyBookie or Café Casino.
• Checks: If you are sent any checks in the mail from winnings, be sure to keep the check stub.
• Paperwork: For some players, winnings will be sent via mail and any paperwork should be kept and used during filing as needed.

Don’t Forget To Pay Your Online Gambling Taxes

Gambling Winnings 1040 Line 21 Schedule

When you gamble online, it is important to enjoy yourself, but also remember to file your winnings! The IRS takes gambling money very seriously and you want to be sure that you pay your taxes accordingly. If you need any additional information, be sure to visit the official website of the IRS to find all the previously mentioned forms you will need fo file your taxes.