Can the IRS tax my gambling winnings? - Yes they can!

If you are a US citizen or subject to US taxes, then any money that you make is taxable, including gambling winnings. Surprised? You shouldn't be. The IRS doesn't care where or how you make your money. If you make it, they will want their cut.

Realistically, if you only made a few dollars, no one would care. If you made a few thousand dollars, they will definitely start to care, especially if they find out that you didn't mention it in your tax returns. If you get issued an IRS Form W-2G from a casino or other gambling establishment, that means that they also told the IRS about it, so you have no escape from the tax man in that case.

Even if you don't get a Form W-2G, you should play by the rules. To make things easy, the IRS offers seven pieces of advice to help you out:

1. All gambling winnings are fully taxable (no matter where you earned it from).
   
   
2. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, poker tournaments and casinos. It includes cash winnings and also the fair market value of prizes such as cars and trips.
   
   
3. A payer is required to issue you a Form W-2G if you receive certain gambling winnings or if you have any gambling winnings subject to federal income tax withholding.
   
   
4. Even if you don't get a W-2G, all gambling winnings must be reported as taxable income. Therefore, you may be required to pay an estimated tax on the gambling winnings. For more information on paying estimated taxes, refer to IRS Publication 505, Tax Withholding and Estimated Tax.
   
   
5. You must report your gambling winnings on Form 1040, line 21.
   
   
6. If you itemize your deductions on Form 1040, you can deduct gambling losses you had during the year, but only up to the amount of your winnings.
   
   
7. Keep track of your winnings and losses. To deduct your losses, you have to be able to document it with things like receipts, tickets, statements or other records that show the amount of both your winnings and losses.

For more information, refer to IRS Publications 525, Taxable and Nontaxable Income, and Publication 529, Miscellaneous Deductions.

Keep in mind that even if you are not a US citizen and you have never had to pay taxes in the past, you may be subject to US taxes if your winnings occur in the US. If this is your situation, you should consult with a tax professional.