Unreported Gambling Earnings and Tax Reporting
Unreported Gambling Earnings & U.S. Tax: Maybe you are at the track watching horse racing with your grandparents (those were good times), or in Vegas at the Caesar’s Palace — and you strike it big! Over the course of the weekend, you were able to win $50,000 in gambling winnings. As you nurse the hangover, the next question is how to report those gambling earnings to the IRS. In other words, is this gambling income taxable on your U.S. tax return, and how do gambling losses impact your taxes.
Yes, your gambling income is taxable, but your gambling losses are deductible up to your winnings.
And, If you are a professional gambler, you may be able to claim gambling losses and deductions on your tax returns, and minimize your income — but this was limited under the TCJA.
In other words, while the IRS’ baseline position is that all income is taxable, not all taxable income is created equally.
We will summarize Reporting Gambling Wins and Claiming Gambling Losses on US Tax Returns.
Gambling Wins & U.S. Tax
You win big, you pay tax — you win small, you pay tax. In other words, all gambling earnings are income that are taxable on your U.S. Tax Return.
But depending on whether you are a “casual gambler” or a “professional gambler” may impact your ability to take losses and deductions.
The general rule is that a person can deduct their losses up to their wins. For example, if a person won $65,000, and lost $65,000 in the same year, they can net out to zero. Therefore, the $25,000 in gambling income is no longer taxed, since the gambling income has been canceled by the gambling losses.
For professional gamblers, the rules have been tightened a bit, in accordance with the TCJA.
For example, prior to the enactment of the TCJA, gambling losses were taken in accordance with deductions AND the expenses could include non-wagering expenses to result in a NOL (net operating loss) — just like most other professional businesses.
But, with the enactment of the TCJA, the wins are limited to the losses, and the non-wagering deductions cannot overtake the winnings, to net out a loss.
Gambling Losses and Taxes (TCJA)
To further clarify how Gambling Losses and Taxes work for professionals under the new TCJA rules consider this example.
A professional gambler amasses $100,000 in gambling earnings in a year. She also has $70,000 in losses, and $50,000 in non-wagering expenses. In prior years, the professional gambler could take the losses and deductions (subject to the 2% miscellaneous deduction floor), and generate a loss.
This loss could offset other income she may have.
IRC 165 (d)
“(d) Wagering losses
Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions. For purposes of the preceding sentence, in the case of taxable years beginning after December 31, 2017, and before January 1, 2026, the term “losses from wagering transactions” includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction.”
Since the TCJA was enacted, using non-wagering deductions to net out a loss is no longer allowed (through 2026)
How to Report Gambling Wins
As provided by the IRS:
“A payer is required to issue you a Form W-2G, Certain Gambling Winnings (PDF) if you receive certain gambling winnings or have any gambling winnings subject to federal income tax withholding.
You must report all gambling winnings as “Other Income” on Form 1040 or Form 1040-SR (PDF) (use Schedule 1 (Form 1040 or 1040-SR) (PDF)), including winnings that aren’t reported on a Form W-2G (PDF). When you have gambling winnings, you may be required to pay an estimated tax on that additional income.
For information on withholding on gambling winnings, refer to Publication 505, Tax Withholding and Estimated Tax.”
International Gambling: FBAR & FATCA
When it comes to international gambling, there are concerns for taxpayers.
In accordance with FinCEN, there U.S. persons are limited to the amount of money they can travel with, before having to report it.
For example, Joan was in Spain for a wedding. She went to the Casino and hit it bit, to the tune of $125,000. Joan wants to bring the money back to the U.S., but in accordance with FinCEN, she may be required to report the money at the airport at customs.
Instead, Joan opens a bank account. And, even though Jane intends on transferring the money immediately to her U.S. account, she now has various issues to contend with, including FBAR Reporting, FATCA Filing, International Wire Audit, and more.
In recent years, the IRS has taken an aggressive position on matters involving foreign accounts compliance and unreported foreign income, so timely reporting is crucial.
Golding & Golding: About our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.