Gambling winnings are taxable
With the new casinos opening throughout the State of Ohio and the lines getting a little shorter here in Cleveland the casual visitor to the casinos now have many more options available to them. I felt it would be a good time to discuss the tax aspects of gambling winnings and other prizes.
Gambling winnings are fully taxable by the IRS, the State of Ohio, and some of the local municipalities within the State of Ohio. These winnings are taxed as ordinary income at the same rates as other income is taxed to the taxpayer by the respective agency. The gambling establishment is required to issue a form W-2G to report the gambling winnings to both the taxpayer and the IRS. However, regardless of whether the establishment actually issues the W-2G the taxpayer should be aware that they are subject to income tax on the gambling winnings. The full amount of your gambling winnings must be reported on line 21 of IRS Form 1040. You may not use Form 1040-A or Form 1040-EZ.
Gambling income includes, but is not limited to, winnings from lotteries, bingo, raffles, horse races, and casinos. It includes cash winnings and also the fair market value of prizes such as cars and trips. So, if you win one of the prizes at the many local festivals or other events in our area, you will be subject to income tax on the value of your winnings. One of the reasons that most winners to the Lake County Dream House choose the cash option rather than the more valuable house option is so that the winner has sufficient cash to pay the income tax liability that occurs as a result of winning.
If a taxpayer itemizes the taxpayer may deduct gambling losses to offset the gambling winnings. However, the amount of the losses that you can deduct is limited to the income that you report on your return. You may not deduct gambling losses that are more than gambling winnings for one year. It is important to keep an accurate diary or similar record of your gambling winnings and losses.
To deduct your losses you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses. You have to be able to support the losses that you are claiming with appropriate supporting documentation for the IRS to allow the deduction should you ever be audited.
For the State of Ohio all gambling winnings are taxable with no offsets available for gambling losses. Gambling winnings are included within the federal adjusted gross income figure that is the starting point of the State of Ohio Income Tax preparation process. In addition, gambling winnings are subject to income taxes by some of the local taxing authorities as well. This is dependent upon where the taxpayer resides and the tax laws of that particular municipality.
So, while you are out enjoying yourself and having fun at the area casinos, race tracks, and bingo halls it is important to take a little bit of time to maintain appropriate records and documentation. A little bit of time spent now being organized can save you a lot of money and time come tax filing time.
Also, remember to set aside some money from your winnings to cover all of the taxes that you may have to pay in the future.