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We aim to avoid causing any distress or adding unnecessary pressure, however, it is important to note that your tax deadline is approaching. Additionally, it is necessary to consider your gambling winnings in the calculations.
April 18 is the deadline for postmarking your federal tax returns. However, there’s no need to worry as we are here to assist you in comprehending the process of reporting your gambling winnings on your taxes.
A comprehensive explanation of the connection between taxes and gambling earnings can be found. Here’s a condensed version of the key points.
If you have larger or more specific inquiries, we recommend reaching out to a tax professional for assistance.
Are gambling winnings taxable?
The sole purpose behind the approval of regulated online gambling in Michigan was not solely for your entertainment.
While it is indeed an additional advantage, the primary motivation behind the government’s decision was the generation of tax income. The results have been quite fruitful, as online casinos and poker alone have contributed approximately $201.7 million in state tax revenue during 2021. Additionally, online sports betting has contributed nearly $7.3 million in tax revenue.
It is now your chance to take the spotlight. Please note that all of your winnings are subject to taxation.
Gambling winnings are subject to a federal tax rate of 25%, whereas the tax rate in Michigan is 4.25%.
If you have won a significant jackpot or made a substantial wager, you should already be aware of this fact. In the case of any winnings amounting to $5,000 or more, the casinos are required to withhold 25% of the amount as taxes for the government.
There are various situations that can potentially compel a casino to take action.
- The accumulated earnings from both bets and profits on a slot machine surpass $1,200.
- The keno profit for a player exceeds $1,500.
- In a tournament, a poker player triumphs with a prize exceeding $5,000.
- The profit of a game exceeds $600 and is equal to or more than 30 times the bet amount.
Form W2-G is used by casinos to report winnings to the IRS in all of these instances.
Do small gambling winnings have to be claimed in tax returns?
It is your responsibility to report your smaller winnings, as they will not be automatically recorded.
We will now proceed to quote ourselves.
Just like any other matter related to the IRS, filling out forms is necessary. The initial step involves reporting the income on the IRS Schedule 1, a form specifically designed for reporting additional income and adjustments to income.
In Part I of the form, locate Line 8 titled “other income”. This is where you should indicate your winnings and their origin. Generally, it is acceptable to mention “gambling” or “casino” as the source of the money. However, if you are concerned about drawing attention, you can provide additional details such as the specific casino and date.
After inputting the information on your Schedule 1, you must transfer the same sum to line 7a of your standard tax return. Subsequently, you can include the winnings in your total taxable income.
Can you deduct gambling losses on your taxes?
In a rare occurrence of swift action for the people, the Michigan legislature demonstrated their efficiency by the end of 2021.
You now have the opportunity to deduct your gambling losses on your state tax return, thanks to a bill that was passed and signed last December. It is worth noting that this provision was already available on your federal return.
When preparing your federal return, you have the option to complete a Schedule A form where you can itemize deductions. Gambling losses should be reported under Box 16, which is designated for Other Itemized Deductions.
There are two important considerations to remember in this context: 1. It is not permissible to declare losses exceeding the amount of winnings you have claimed; 2. You must have the ability to substantiate all of these losses.
Even if online apps fail to provide a tax document, they still maintain a record of your wins/losses for you to refer to.
