How Much Money Can You Win Gambling Without Paying Taxes

Novice gamblers in the United States often find themselves wondering how much money they can win without paying taxes. The simple answer is you cannot gamble without paying any taxes, at least not legally. The Internal Revenue Service (IRS) demands gamblers report everything they win, making it impossible to win money from gambling without paying taxes if one does not wish to break the rules.

Keeping Track of Your Gambling Is Important

All wins from gambling should be reported in a player’s tax returns. As explained by the IRS, the full amount of gambling winnings should be reported on line 21, Form 1040.

However, that is not all as when operators hand out bigger prizes, they would provide players with an additional form to fill out. Form W-2G is handed to players who win more than $600 from gambling. This sum upon which a player is required to fill in a form W-2G may vary depending on the gambling vertical.

In addition, for extremely lucky players who win more than $5,000 from gambling, the operator may withhold 28% of the money for Federal income tax. In case players failed to provide the operator with their Social Security number, the money withheld will actually be 31% of the total winnings.

While players cannot really legally win money from gambling without paying taxes, they can optimize their earnings by deducing losses.

What Exactly Is Taxed?

So, if there is no real way to win from gambling without paying taxes, does that mean that players should report all their private games with friends as well? The short answer is yes.

The IRS expects people to report everything they win or lose to gambling, regardless if it’s a small-time win from a friendly Friday night game of poker with friends or a big jackpot from a Las Vegas slot machine. While the IRS cannot realistically persecute every person who has won ten bucks from a friendly game, being honest and transparent is the only surefire way to avoid trouble.

In addition, it should be obvious that no one will be around you to keep track of your every small win from a game with colleagues, which is why gamblers should keep track of how much they win or lose.

Non-monetary prizes such as vacations, cars, or other goodies should also be reported. When reporting material or abstract wins, you’d do your best to report their real market value.

You Can Reduce the Taxes by Deducing Losses

We’ve previously addressed the topic of proving gambling losses but let us quickly go through the important bits.

First of all, as mentioned earlier, players should keep a gambling diary, reporting all their winnings and losses. It would be easier for both players and the IRS if you keep track of your gambling winnings and losses separately.  

If players have reported all their gambling income properly, they can itemize their deductions on Schedule A (Form 1040 or 1040-SR). While winnings should be reported as “Other income,” losses can be reported as “Other itemized deductions.” There is also a variety of documents players can use to prove their losses, such as Form W-2G, Form 5754, betting tickets, canceled payments, credit record, bank withdrawals, and receipts from casinos and sportsbooks.

Players can deduce losses up to the number of their winnings, so if you have won less money than you lost throughout the year, you technically avoid taxes. Although this is not a very lucrative and desirable scenario, if you are not very lucky you can technically gamble without paying taxes.

One of the most important things to remember is that the more transparent you are, the easier it would be to claim deductions. While this doesn’t sound as appealing as winning money from gambling with no taxes at all, it definitely will save you a lot of money.

Different Jurisdictions, Different Rules

It should be noted that the aforementioned tips only apply to gamblers in the United States. If you live in or move to another country, you should get familiarized with the local rules and regulations and adjust your gambling behavior appropriately.

Gambling without knowing whether you have to report winnings or pay taxes is just asking for trouble. There are various sources you should be able to address when researching how a specific market works but you might also want to contact an authority just to be on the safe side.

In the USA, some states have additional taxes in the form of state taxes. Depending on where you live, you might need to pay extra taxes in accordance with local rules.