Which gambling winnings are taxable
If you’re new to gambling, it can be difficult to know which wins are taxable. This is particularly true when you play games that don’t have clear-cut win or lose scenarios. When you win money playing a slot machine or table game, how much of your winnings are taxable?
Non-gambling games usually have clear-cut win or lose scenarios. So, these games tend to have fairly straightforward tax consequences. But if you play games such as video poker, roulette, and other similar games, then it gets a bit more complicated.
The type of wagering activity involved and the rules under which the game was played will all impact which gambling wins are taxable: earned income, royalties, prizes, winnings, and so on. Please note that this relates to citizens of the United States. If you live elsewhere then you need to check the tax laws of your country.
What is a gambling win?
When you play a game for money and win that money, that money is known as a gambling win. The amount you win is the amount you walk away with, and it can be up to the full amount of your original bet. If you bet $10 on a slot machine, you might walk away with $50 if you win.
While there are many factors that can affect the payout of a game, the most relevant for determining whether a win is taxable as earned income is the payout percentage on the game. The payout percentage is a game’s payback rate, which is how many times out of 10 you get back your original bet.
Since you’re gambling on the outcome of the game, you can only expect a payout percentage of 50% or less on the average slot machine. This means that most of a gambling win is non-taxable return on your original gambling wager.
Non-gaming gambling winnings are taxable as earned income
If you won income during the year from playing a gambling game, then this is taxable as earned income. You must be able to prove that you won money from a game of chance, and that you were paid for your time spent playing the game.
This is the most common type of gambling win, and it is subject to federal income tax. If you live in a state that has its own income tax laws, then these state taxes may apply as well. Be sure to check your local tax laws.
Royalties on gambling winnings are taxable as winnings
If you won income during the year from playing a gambling game, and if the game also provided you with a royalty, then this is taxable as a royalty. You must be able to prove that you were given a percentage of the money made from the game, and that this is taxable income.
To determine if the creator of a slot machine game or a poker app is required to pay you a royalty, you’ll need to know how much you won from the game, how often you played the game, and how much you won on average. The IRS provides some helpful examples of how to use these factors to figure out your royalty.
Winnings from poker, baccarat, and slot machines are taxable as prizes
If you won money from a game of chance and you have no other type of income from the same game, then this is taxable as a prize. You must be able to prove that you were given the money as a prize. There are lots of different types of games that fall under this category, including video poker, roulette, and horse racing.
You can see the specific game types that are taxable as prizes by checking the list of taxable games. If you are interested in playing poker online but do not want to reveal your personal details then take at poker sites with no verification.
Random Number Generators (RNG) aren’t taxable as winnings
If you were given a random number generator as a prize in a game of chance, then the payout produced by the RNG isn’t taxable as a prize. You must be able to prove that you were given the RNG as a prize.
When you have no other type of income from the same game, then this is the likely outcome. A game of chance would likely have given you the RNG as a prize for participating in the game.
Where to find information about gambling wins and losses in the IRS records?
There are a few ways to determine the win and loss amounts from a gambling win. You can search online for your state’s list of taxable games and see if any of the games you played show up on the list.
You can also look at your tax records to see if you have any win or loss records for your gambling wins. One way to find out if you have records of your win or loss amounts is to search your state’s list of taxable games.
This list will show you which games are taxable in your state. If any of the games on this list show up on your state’s list of taxable games, then you can search your tax records to see if you have a record of these wins or losses.
Summary
There are many factors to consider when determining the tax consequences of your gambling wins. The type of game you played, the payout percentage, the total amount won, and how often you played will all impact your win and loss amounts.
The most common type of win is a non-gambling win, where you won income from a game of chance, such as a slot machine or a roulette wheel. A gambling win is when you win money from a game of chance, such as from a video poker machine or a baccarat table, and you have no other income from this same game.
These wins are taxable as earned income, royalties, and prizes, depending on the other types of income you have from the same game. If you are in any doubt then seek the assistance of a qualified tax accountant or speak with the IRS directly.
