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The Difference Between Taxable Gambling Winnings and Non-Taxable Gambling Winnings

The Difference Between Taxable Gambling Winnings and Non-Taxable Gambling Winnings

Whether you win at the slots, cards, dice, racehorses or even online poker games, it's probably fair to assume that your winnings are taxable. That said, not all gambling winnings are created equal. While most people know that their casino or racehorse winnings will be subject to taxes, there is a difference between taxable gambling winnings and non-taxable gambling winnings. In this article we'll discuss the differences between taxable and non-taxable gambling winnings so you can keep more of your money by playing smart instead of going broke.

What Are Taxable Gambling Winnings?

Taxable gambling winnings are winnings that are subject to income taxes. This can be any type of gambling winnings including casino winnings, race winnings, online poker winnings, etc. Basically, any money you win while gambling that is not given to you in a non-taxable manner is considered taxable gambling winnings. For example, if you win $5,000 playing blackjack, you have gambling winnings that are taxable. This is because you won the money while gambling, and casinos normally don't give you free money. However, if you win $5,000 at the blackjack table by getting a blackjack (21) and having the dealer go bust (19 or less), your winnings are not taxable. This is because the house pays you that money, so it is not considered gambling winnings.

What Are Non-Taxable Gambling Winnings?

Non-taxable gambling winnings are winnings that are not subject to income taxes. In other words, all winnings given to you in a non-taxable manner are non-taxable winnings. Of course, when it comes down to it, what constitutes taxable versus non-taxable winnings is a bit more complicated than that. For example, if you win $10,000 playing blackjack, but the dealer pays you with $10,000 in unmarked $10 bills, your winnings are not taxable. Why? Well, since you received unmarked $10 bills, you were not given the winnings in a non-taxable manner. Instead, you received the winnings in a taxable manner since you do not know how much you won and that you even won at all. On the other hand, if you win $10,000 playing blackjack, but the dealer pays you with $10,000 in $10 bills marked “$.10,” your winnings are not taxable. This is because the dealer paid you in marked money, so you were given the winnings in a non-taxable manner.

Taxable Gambling Winnings Calculation

Taxable gambling winnings are calculated by taking your winnings (gross winnings) and subtracting any expenses incurred while gambling (gross winnings less expenses). For example, assume you visit the casino and win $1,000 playing blackjack by getting a blackjack (21) and having the dealer go bust (19 or less). In this example, your gross winnings are $1,000 since you received $1,000 from the dealer. However, let's assume you played for 5 hours and incurred $200 in expenses on drinks, taxi fare, and tips. Your gross winnings less expenses are $800 ($1,000 - $200) since you received $800 from the dealer after accounting for the $200 in expenses. This is the taxable amount of your winnings.

Non-Taxable Gambling Winnings Calculation

Non-taxable gambling winnings are calculated by taking your winnings (gross winnings) and subtracting any expenses incurred while gambling (gross winnings less expenses). For example, assume you visit a casino and win $1,000 playing blackjack by getting a blackjack (21) and having the dealer go bust (19 or less). In this example, your gross winnings are $1,000 since you received $1,000 from the dealer. However, let's assume you played for 5 hours and incurred $200 in expenses on drinks, taxi fare, and tips. Your gross winnings less expenses are $800 ($1,000 - $200) since you received $800 from the dealer after accounting for the $200 in expenses. This is the non-taxable amount of your winnings.

Other Non-Taxable Winnings

There are other types of winnings that are non-taxable, including winnings from slot machines, horse race winnings, and lottery winnings. These specific winnings are non-taxable winnings because they are usually given to you in a non-taxable manner. For example, slot machine winnings are non-taxable because casinos do not know how much you won by playing the machine. Likewise, horse race winnings are non-taxable because you were paid for your winnings with marked bets. Finally, lottery winnings are non-taxable winnings because you were paid for your winnings with non-negotiable bonds.

How to Avoid Paying Taxes on Your Winnings

Depending on the amount of your winnings, you may want to talk to an accountant about ways to avoid paying taxes on your winnings. To be honest, you can find ways to avoid paying taxes on your winnings no matter how much you win. For example, let's say you win $1,000 playing blackjack and you have no other income. If you are in the 15% federal tax bracket, you will owe $150 on your gambling winnings. However, if you have no other income, you can use your gambling winnings to offset your taxes. However, if you earn $50,000 per year and have no other winnings, your taxes are $8,750. If you have $1,000 in gambling winnings, you can use $1,000 to offset your taxes. This saves you $750, and it's a great way to get extra money without having to break a sweat.

Conclusion

Gambling winnings can be a great source of income, but they can also be a source of stress. If you are not careful, you may wind up owing a lot of money in taxes. Thankfully, you can reduce the amount of taxes you pay on your winnings by taking advantage of the various deductions available to you. With a little bit of planning and research, you can reduce the amount of taxes you pay and enjoy your winnings a lot more.

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