Today Mark in Mississippi is still reeling. Here’s why – The other day, I dropped twenty bucks into a 50-cent slot machine and I won $326,000.00! I suspect that over half will be taken for state and federal taxes. As a farmer, can I offset the taxes due by adding to my farming operation (i.e. new fencing, stables, bloodstock purchase)?
See what happens when you leave the farm!
That had to be so exciting. How long did it take you to start breathing again after you realized you’d won?
Actually, you have two different tax things happening here.
1) You have the gambling winnings,
a) which get reported on the first page of the tax return as “Other income”.
b) You have gambling losses, which get reported on a special line on Schedule A – line 27. This line lets you enter all your gambling losses, without deducting 2% of your adjusted gross income or AGI (that’s the last line of page 1 of the Form 1040). So, be sure to add up all the money you spent gambling on lottery tickets and scratch-offs as well as on riverboats and casinos during the same year. http://www.irs.gov/pub/irs-pdf/f1040sab.pdf
2) And then you have your farm. Report that on Schedule F. http://www.irs.gov/pub/irs-pdf/f1040sf.pdf
When you report all your farm income, and all your farm expenses, take into account everything you spend.
Please understand that if you spend those gambling winnings on things like stables, barns, new fencing, and breeding stock, you’re going to need to depreciate them. So, you may not get a full write off for those costs this year.
Of course, you might be able to IRS Code Section 179 to write off some of those assets sooner. In fact, I believe you may be able to use that to write of livestock. But that special provision won’t apply to buildings or structures. I am not certain if it applies to fencing.
Whatever you can deduct will reduce your net farming profits. The final result will end up on the first page of your Form 1040. Most likely, it won’t be enough to wipe out your winnings.
But you might be able to use some of that money to fund some deductible pensions or retirement plans. So, use some of that good fortune and visit the best tax professional you can find in your area who understands farming and ranching.
My book about small business taxes will help you some, but…a good local tax pro in your area will help you even more. .
You’ll find answers to all your questions about winning – and all kinds of tax information, where? At TaxMama.com
- Ask TaxMama :: Where taxes are fun and answers are free
- Small Business Taxes Made Easy :: For business deductions and owner’s benefits
- Form 1040, Schedule A :: See line 27 to deduct all your gambling losses
- Form 1040, Schedule F :: Where you report your farming operations