Today TaxMama hears from Anthony in the Tax Quips Forum with this question. “I won $100,000.00 at Bally’s casino in Atlantic City on January 15, 2011 However, by now I have gambled all my winnings away. I don’t own a house or car or anything, nor do I have any money left in the bank. Am I still supposed to pay taxes on the money I won, but no longer have? Thank you.”
That’s a huge win. And it’s been reported to both IRS and the State of New Jersey. Not only do you have to pay tax to the IRS and the State of New Jersey, you also have to report it to your home state.
However, you may take a deduction for your $100,000 worth of losses on Schedule A, as an itemized deduction. In fact, there’s a special line (line 28) that allows you to avoid having to reduce the gambling deduction by 2% of your adjusted gross income (AGI).
You need to report all your winnings for the year, from all sources. You may deduct your losses, up to your winnings, on Schedule A. However, you will have to be able to PROVE you gambled $100,000 and didn’t just spend it. So start gathering whatever evidence you can immediately.
If you don’t normally itemized, you will end up, effectively paying taxes on a small part of the winnings, since you won’t have your standard deduction anymore. And since the winnings do shoot up your AGI, you may lose some credits, or other tax benefits you might have been used to getting.
Other than that, it won’t be too painful.
And remember, you can find answers to all kinds of questions about gambling income and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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