Is there anything more exciting than hitting a big payoff when your “long shot” wins at the track?
It’s exhilarating, for both you and the IRS.
Unfortunately, horse winnings are taxable. If fact, if your winnings are large enough, the taxes will be withheld before you ever receive your payoff.
If your winnings minus your wager are over $5000, and at least 300 times that wager, 28% of your profit will be withheld. Plus, you’ll be handed a Form W-2G, for good measure. (Uncle Sam doesn’t like to gamble when it comes to collecting taxes.)
When you complete your Form 1040, you must report all gambling income on line 21. And, the IRS means all gambling income, not just for the horse winnings for which you received the W-2G. Even if you did not win enough another time to get the W-2G, you still need to report it.
The good news is that, if you itemize, you can deduct your gambling losses up to the amount of winnings that you report on Schedule A. The bad news is that the reporting requirements for documenting these losses are very demanding.
You’re expected to keep a detailed record of your winnings and losses showing dates, tracks, races, wagers, amounts won and lost by ticket, and witnesses. In addition, you may be required to provide supporting documentation such as W-2Gs, losing tickets and bank and credit card records.
Obviously, the more difficult the IRS makes it to take these deductions, the fewer gamblers will take. This, of course, increases federal tax revenue.
But, Uncle Sam is not alone in his desire to increase tax revenue. The Kentucky House of Representatives recently passed a bill taxing online and phone “advanced deposit wagers” on horse racing. The bill which taxes online and phone bets 0.5% is estimated by supporters to generate up to $400,000 per year. It passed the House 85-8, and will now be considered by the Kentucky Senate.
As a responsible bettor, you need to be as good at picking an accountant as you are picking the ponies. That way you can spend your days at the track, instead of with auditors.
Now that we’ve got that out of the way, tell us about your best day at the track in the comments!