You won big and need to know how to pay your gambling taxes. Perhaps, you’re not sure how to report gambling income or whether you can claim deductions. Or maybe the IRS adjusted your return or selected you for an audit related to your gambling income.
Regardless of the situation, the rules are complicated, and you certainly do not want to overpay tax or incur unnecessary penalties. Hiring a gambling tax lawyer can make a big difference.
Let’s clarify and reduce some of the confusion. Know that you can turn to Seattle Legal Services at any time for answers to your questions.
Key takeaways:
- Taxpayers often must pay taxes on their gambling winnings.
- If you don’t report gambling income, the IRS will adjust your return and add penalties.
- The IRS may also audit your return to check your deductions if you report gambling income.
- A tax attorney can help you respond to IRS notices, adjustments, and audits.
- To protect yourself, look for an attorney experienced with this type of tax problem.
Do You Need an Attorney for Gambling-Related Tax Problems?
You may need a tax attorney experienced with issues related to gambling income if:
- You received a W-2G and don’t understand your reporting obligations.
- You got a notice from the IRS about unreported gambling income.
- You disagree with an adjustment the IRS made to your return.
- The IRS is auditing your return, and you’re a professional gambler.
- You disagree with the results of an IRS audit.
- You want to seek penalty relief.
- You incurred a tax liability due to gambling income or loss of deductions, and you want help making payment arrangements.
- The IRS has started collections due to unpaid taxes stemming from gambling income.
Many gamblers face the reality of paying the IRS for gambling winnings only after they receive some notification. Here’s what you need to know:
- Winnings are fully taxable in most cases.
- Losses must be proven, not just stated.
- IRS audits this area aggressively, and you should never assume they will not check.
A gambling tax lawyer will help you at every stage of this process. That includes ensuring you are compliant, preventing and responding to a gambling winnings audit, as applicable, and minimizing your tax exposure.
Winning big does not have to lead to IRS problems, but you need some help navigating the process.
What the IRS Expects with Gambling Winnings and Losses
You bet a few dollars and now have a tax bill. How does that work?
Report all gambling winnings.
The IRS makes it very clear. You must report all gambling winnings on your tax return. This includes:
- Lottery winnings
- Casino winnings
- Online betting wins
- Sports-related winnings
- Raffle winnings
- Horse racing winnings
Generally, you only need to report winnings if you received a form. You don’t have to report winning a few dollars from a scratch ticket, for example.
Deduct your losses
The IRS also lets you report your losses, with some caveats:
- Hobby gambler – you can only deduct losses if you itemize your deductions for the year.
- Professional gambler – you can deduct losses on a Schedule C as a small business owner, without itemizing, but you must meet certain rules to qualify as a professional.
As of tax year 2025, the IRS limits deductions for gambling losses to 90% of your winnings. For example, if you win $1 million, you can deduct up to $900,000 in losses.
Document Everything
You don’t have to send supporting documents to the IRS, but you will have to provide them if you get audited. While it’s easy to document income, you also need strong gambling loss documentation to demonstrate exactly where your deductions came from. You need receipts or other proof of wagers in the exact amounts – personal notes and estimates are not enough.
How to Deal With Form W-2G
IRS Form W-2G is issued by a gambling establishment if your winnings meet a specific threshold. In addition to sending you the form, the establishment will also send Form W-2G to the IRS to document your winnings.
You’ll receive a W-2G if you win:
- Bingo game or slot machines: $1,200 or more
- Keno games: $1,500 or more
- Poker tournaments: $5,000 or more
- Other winnings: $600 or more in winnings from other types of gambling, if the payout is at least 300 times the wager amount
Again, you should not file a tax return that does not include these winnings. The IRS already knows about the income, and if you don’t report it, they’ll adjust your return.
When Hiring a Tax Attorney Is Critical
You generally don’t need to hire a gambling tax attorney for a simple reporting of winnings on your income tax return. However, there are times when hiring a tax attorney for gambling winnings becomes essential to protecting yourself. Reach out to a tax attorney if:
- You receive an audit letter or CP2000 notice
- Your gambling losses are being disallowed
- You didn’t track your losses but claimed them
- You received multiple W-2Gs or a six-figure gambling income
- You’re a professional gambler (different rules apply)
- You filed late, missed reporting, or owe back taxes on winnings
- The IRS is assessing civil penalties for fraud
In these situations, we encourage you to at least have a consultation with a tax attorney. It helps you understand what your rights are in each situation.
How a Tax Attorney Can Help Gamblers
When you’re dealing with tax problems related to gambling income, tax attorneys can provide a range of services and help you deal with complicated situations.
Bottom line: Attorneys work to protect you from unwanted tax assessments, unnecessary penalties, inaccurate audit results, and other potential issues. Here’s what they do:
Gather and Structure Acceptable Documentation
No matter what you won or bet, documentation is everything. During an audit, documentation backs up the claims on your tax return. That can minimize the risk of inaccurate IRS assertions about what you owe. Your lawyer will help you with:
- Reconstructing lost or weak records, such as using loyalty cards, ATM slips, and win and loss statements
- Proving legitimate losses that allow you to avoid penalties and reduce your tax debt
- Representing you if the IRS audits you.
- Filing appeals if decisions have already been made against you
- Negotiating payments (aka Installment Agreements) or a settlement on your behalf, such as an Offer in Compromise, to help you get out of tax debt.
- Creating long-term strategies for professional or frequent gamblers to minimize tax obligations and audit risks
Legal representation matters. Knowing your rights allows you to make better decisions. Most importantly, a tax attorney can help you avoid incorrect tax assessments or costly penalties that take up all of your winnings.
Avoiding Common Gambling Tax Pitfalls
The IRS has no intention of letting you slide by without paying what you owe. As noted, the organization carefully and aggressively seeks out taxes on winnings. You could be facing scrutiny if you make any of the following mistakes:
- Failing to report winnings
- Assuming cash losses do not need to be tracked (and failing audits)
- Using estimates or made-up logs to demonstrate winnings or losses
- Not understanding the difference between recreational and professional gambling
- Relying solely on casino statements
The burden of proof is on your shoulders. If you cannot demonstrate what you are claiming, the IRS is not likely to side with you. For that reason, we strongly encourage anyone with any significant winnings to hire an attorney.
Do Not Take the Risk: Let a Gambling Tax Attorney Protect You
When you win or lose, whether it’s at the tables, track, or online, you simply cannot afford mistakes in reporting to the IRS. Doing so can lead to frustrations and long hours of trying to prove your rights. Avoid that and the fines that come with it by working with a tax attorney experienced with gambling-related tax problems.
Seattle Legal Services helps taxpayers navigate IRS issues related to gambling income or deductions. Whether you are already being audited or have received notices, contact us today for a confidential consultation.
FAQs
Are gambling winnings taxable?
Yes. Simply, all gambling winnings are considered taxable income, regardless of amount. It does not matter if you win $1,000 at the poker table or $20,000 at the race track. You must report it all, and it is all taxable.
Can I deduct gambling losses?
Yes, but only up to 90% of your total winnings. However, the deduction process varies for professional and amateur gamblers.
How do you deduct gambling losses?
Amateur gamblers can only deduct losses if they itemize – if so, they report losses on Schedule A with other itemized deductions. Professional gamblers should report winnings as business income and then deduct losses as business expenses on Schedule C.
What happens if I don’t report gambling winnings?
Failure to report gambling winnings can lead to IRS penalties, interest on taxes owed, and audits of your income taxes triggered by a non-reported W-2G.
What’s the best way to prove gambling losses?
To back up losses in case you’re audited, keep a detailed log with dates and times of what you are gambling, where, and how much. Document how much you win or lose while gambling, even if it is in a paper log or an electronic file on your smartphone. Keep receipts documenting your bets, winnings, and losses, and download betting histories from gambling websites.
Can a gambling tax attorney help with IRS debt?
Yes, if you owe taxes, your tax attorney will negotiate settlements when possible or work with you to set up an installment agreement. This can help you resolve tax debt and penalties from gambling effectively.
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