With the growing popularity of legalized sports betting, CPAs should know how to help their clients with the taxation of gambling income and losses.
Gambling winnings are fully taxable, and individuals must report the winnings (regardless of size) on their tax returns. If the individual’s gambling winnings exceed a certain threshold, he or she will usually receive a Form W-2G from the gambling establishment, which will also send a copy to the IRS.
Nonprofessional gamblers report their winnings as “other income” on line 21 of their tax returns. Taxpayers are also required to keep an accurate record of the event to account for their gambling winnings and losses.
Taxation of gambling income for professional gamblers, especially poker players, is more complex. CPAs whose clients have gambling income and losses need to understand the specific manner in which those clients engage in gambling.