DEFINITION of Gambling Income
Gambling income is any income that is the result of games of chance or wagers on events with uncertain outcomes (gambling). This income fully taxable and must be reported on an individual’s federal tax return.
BREAKING DOWN Gambling Income
Gambling income includes any money earned from gambling, whether it be winnings from casinos, lotteries, raffles, and horse and dog races, bingo, Keno, betting pools or sweepstakes. Gambling income also includes cash and the fair market value of non-cash prizes like cars or trips. The payer of the winnings (for example, a casino) may give the winner a W-2G form and also send a copy to the IRS.
Even if the winner does not receive a form W-2G from the payer, he or she must still report all gambling income. The full amount of the income earned gambling less the cost of the bet must be included on a person’s federal tax return. Gambling losses, or losing bets, can also be reported on a federal tax return. For shared gambling income (winnings shared by two or more people), the casino or payer divides the winnings among the payers and reports the winnings to the IRS for each winner.
Professional gamblers are those that gamble on a full-time basis and earn enough to pay their living expenses such as house payments or rent, utilities and insurance, among other necessities. Some individuals earn income from part-time gambling. Professional gamblers report their gambling income as self-employed income, which is subject to federal income tax, self-employment tax and state income tax.
The most common games that offer professional gamblers long-term profits include blackjack (usually by counting cards, which is discouraged by casinos), daily fantasy sports (DFS), poker, sports betting and video poker. Truly professional gamblers will use only legal and legitimate betting systems to maximize their winnings and minimize their losses in order to make a profit.