Taxes on Sports Betting Winnings. Nevada, far and away the most flexible state to bet sports on allows you to bet on all kinds of things on all kinds of sports. If you aren’t a professional gambler, you will want to claim these winnings as “other income”. The most important of these conditions is that you can’t claim losses that total more than your gains. So, if you lost $5,000 on sports betting last year but took home $7,000 in the end, you’d be able to deduct all of those losses. If you lost $15,000 on sports betting but took home $5,000.

• Factoid: Twenty-five years ago 2 states had legalized gambling and 48 did not. Now 48 do and only 2 do not (Hawaii and Utah.)
• Factoid: Nevada gambling revenue was $1 billion in 1975 ...$10 billion in 2004 and is projected to be $15 billion in 2009.

'Las Vegas was built for people who are really bad at math....' ...Penn Jillette (Penn & Teller, now at the Rio!)

'There are two times in a man's life when he should not speculate: when he can't afford it and when he can.' ...Samuel Clemens, also known as 'Mark Twain' (1835-1910)

In the last decade, entertainment, shopping and fine dining have replaced gambling as the top attraction for visitors to Las Vegas. Many hotels get more than half of their revenue from non-gambling sources.

Although tourists no longer list gambling as the primary reason for their visit, almost all are willing to risk an average of $500 each trying to hit that elusive jackpot.

Nationwide, casino gambling is a $50 billion business. And 20 percent of that amount comes from just one state ...Nevada. One third of all Nevada general tax revenue comes from state gambling taxes.

The state of Nevada and casinos like to call it “gaming” since ”gambling” has such an negative ring to it. We agree. “Gaming” is a better word for the games of chance legally offered in Las Vegas. Games are played for entertainment. And this is how you should treat the money you risk in Las Vegas in hopes of hitting “The Big One.” Play for fun and the “possibility” that you might win. NEVER take Las Vegas gambling seriously.

Gambling laws in Nevada

Las Vegas gambling was legalized in 1931. The Nevada Gaming Commission and Control Board develops and administers all gaming regulations. Their website can make interesting reading. Casinos with more than 15 slot machines pay an annual tax of $250 on each one. There is also an additional monthly tax of up to 6.75% on gross gaming revenue ...a percentage that is the lowest in the U.S.

Anyone working as a gaming employee must be registered with the state and have a valid gaming work permit. This includes all casino workers except bartenders and cocktail waitresses.

You must be 21 to enter a casino, gamble ...or purchase or consume alcoholic beverages. If you look young carry a state-issued ID with photograph such as a driver’s license. Children are permitted in the casino public walkways but are not allowed to be near slot machines or gaming tables. You are allowed to carry open alcoholic beverage containers on the street, but not in a vehicle.

Taxes on gambling winnings

There are some things you should know if you are lucky enough to win. The Internal Revenue Service (IRS) requires all casinos in certain instances to withhold federal taxes if you win over a certain amount. The percentage withheld ranges between 25 and 30 percent depending on how you won. Here is how it works.

If you had gambling winnings, the casino is required by the IRS Information Reporting rules to withhold 28% as income tax if you do not provide a documented TIN (Taxpayer Identification Number, that is, your Social Security Number.) We have heard of cases where it is withheld no matter what. The withholding tax is 30% if a foreign gambler. The tax rate is 25 percent if the amount is over $5,000 (except for non-resident aliens.)

When your winnings exceed a specified threshold and/or tax is withheld, the casino will give you an IRS Form W-2G showing the amount you won and the amount of tax withheld. Report (and take credit for the tax you paid) on your IRS Form 1040 tax return at the end of the year. (Only use Form 1040 if you had gambling winnings; you cannot use any other form.)

Generally, gambling winnings are reportable to the IRS if the amount paid is (a) $600 or more and (b) at least 300 times the amount of the wager. This requirement primarily applies to lotteries, sweepstakes and other big winnings from small bets. It does not apply to winnings from bingo, keno, and slot machines.

Casinos report gambling winnings for these games to the IRS when a player wins $1,200 or more from a bingo game or slot machine or if the proceeds are $1,500 or more from a keno game. When you exceed these amounts, the casino may withhold taxes and will provide you with IRS Form W-2G. They keep the original and give you two copies of the form. (If state income tax withholding is required on gambling winnings in your state, additional taxes may be withheld.)

The rules are different for table games (such as blackjack, baccarat, craps, roulette or other spinning wheel games.) Since Nevada casinos do not know the amount you started with, they are not able to determine how much you won (...your taxable gain.) As a result, federal law provides that there is no withholding or even reporting of table game wins to the IRS. It therefore follows that table game winners probably do not report their gambling profits to the IRS.

You not only pay taxes on gambling profits, but you can also claim gambling losses as an itemized deduction as well. But you must keep some kind of documentation (such as a diary or tickets) to substantiate the amount and nature of the losses. In any event, you cannot claim gambling losses that exceed your winnings.

Managing your money

Greed is the downfall of most players. The odds that you will win if you play long enough is statistically wrong ...as is; having doubled your money, you next try to quadruple the winnings (and end up losing it all.) Both concepts have built a lot of nice hotel-casinos in Las Vegas.

My system for managing gambling money is simple. I budget $100 a day which, according to statistics, is about average for Las Vegas visitors. If I am on a five day vacation, I put $100 in each of five dated envelopes ...a total of $500. I ration the money throughout the day and stop when I lose my hundred and do other things. I might stop when I double my allotment. In any event at the end of the day, I either am ahead or behind. If I am ahead, I put whatever portion of the $100 I have left (hopefully it is more than $100) back in the same dated envelope and place it in the room safe that hotels provide. Tomorrow I play with the money in following day’s envelope. The most you can lose is $100 on any given day ...or $500 for your trip. I am happy if I break even ...and you should be too. Once in a while I go home with “their” money. In recent years I have done better. I will tell you how later.

The bad news: There are no casino games or bets where the house does not have a clear advantage. The odds either favor the house ...or they get a commission. And if you are not familiar with basic information about the games you play or bets you make, you are just about a guaranteed loser. In short, casino owners are in business to make a profit. They did not build all those gorgeous hotels by giving away money.

The good news: The reality is that if you are lucky you can win ...and the drinks are free. But statistically the chances are against winning. So the cardinal rule is, over the long haul, whether playing the slots, table games, betting on sports or risking money on anything; you will probably lose. But some bets are better than others.

It is beyond the scope of this website to provide in depth strategy on how to gamble and win in Las Vegas. Many books have been written on the subject and - trust me - none work over the long haul ...or are illegal.

We will, however, cover the most popular games and things you should know as a beginner to have fun and minimize your loss ...and maybe make a few bucks.

Let the games begin

Blackjack (21) is either dealt by hand with one or two decks. Multiple Deck 21 is dealt from a box called “the shoe.” Everyone in Blackjack plays against the dealer. Roulette consists of a spinning wheel marked with numbers 1 through 36 (18 red, 18 black) and American Roulette has a green 0 and 00 ..a total of 38 possibilities. You win if your number, combination of numbers or color comes up. To play Keno, you select a minimum of 4 but no more than 10 numbers on a ticket between 1 and 80. Twenty of the 80 numbered balls are drawn and you win if all your selected numbers are chosen. Craps is a complicated dice game which we do not recommend for first-timers. There are many other table games (and variations) as well. More and more people are playing poker these days and we will also have a little to say about that later.

By far, however, the most prevalent pastime in Las Vegas is playing the slot machines ...and video poker. We will cover the games of chance and sports betting in this chapter ...which you should play, where you should play and the odds of winning.

NEXT PAGE: 10.2 SLOT MACHINES ...AND VIDEO POKER... ⇨

You’ve beaten the odds and won the lottery. Depending on where you won your prize, the deal is even sweeter, since some states don’t tax lottery winnings. It doesn’t matter if you don’t live in the state in which you won. You will still have to pay their taxes, as well as federal taxes on your prize. Here’s a basic lottery tax calculator so you can figure out what you owe on the state level if anything.

State Tax On Lottery Winnings

Taxes are based on where the winning lottery ticket was purchased, not where the winner resides. If you won the lottery in a state that doesn’t have an income tax, you’ve really hit the jackpot. Florida, Hawaii, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming are the states without income tax. California and Delaware are other especially lucky states for lottery winners since they don’t impose state taxes on such windfalls. Although they aren’t states, winners also aren’t charged taxes in Puerto Rico or the U.S. Virgin Islands. Here is the tax on lottery winnings by state:

• Arkansas – 7 percent
  
• Colorado – 4 percent
  
• Connecticut – 6.99 percent
  
• Georgia – 6 percent
  
• Idaho – 7.4 percent
  
• Illinois – 4.95 percent
  
• Indiana – 3.40 percent
  
• Iowa – 5 percent
  
• Kansas – 5 percent
  
• Kentucky – 6 percent
  
• Louisiana – 5 percent
  
• Maine – 5 percent
  
• Massachusetts – 5 percent
  
• Michigan – 7.25 percent
  
• Missouri – 4 percent
  
• Montana- 6.9 percent
  
• Nebraska – 5 percent
  
• New Jersey – 8 percent
  
• New Mexico – 6 percent
  
• New York – 8.82 percent
  
• North Carolina – 5.499 percent
  
• North Dakota – 2.9 percent
  
• Oklahoma – 4 percent
  
• Ohio – 4 percent
  
• Oregon – 8 percent
  
• Pennsylvania – 3.07 percent
  
• Rhode Island – 5.99 percent
  
• South Carolina – 7 percent
  
• Vermont – 6 percent
  
• Virginia – 4 percent
  
• West Virginia – 6.5 percent
  
• Wisconsin – 7.65 percent
  

While Arizona and Maryland tax their resident lottery winners at 5 percent and 8.75 percent, respectively, out-of-state residents winning these state lotteries will have a greater percentage of tax withheld. Five states don’t have lotteries: Alabama, Alaska, Mississippi, Utah and Nevada, wherein lies Las Vegas, the gambling capital of the nation.

Federal Lottery Taxes

The Internal Revenue Service considers lottery winnings as gambling income. Such monies are in the same class as those won in casinos, horse racing and raffles. If you won a big ticket item, such as an automobile, you would have to pay taxes on its fair market value. Report your winnings on Form 1040, line 21, as “other income.” You’ll receive Form W-2G, “certain gambling winnings,” from the payor with the information you’ll need.

You’ll pay taxes at ordinary income rates at the federal level, but if you’ve won more than $5,000, the amount of tax owed is automatically withheld by the lottery authority. If you received a large but not stupendous amount of money, automatic withholding is 24 percent. If it’s a Powerball payout, however, that’s a different story.

Powerball After Taxes

Gambling Winnings Reporting

If you won the Powerball lottery, expect to pay 37 percent in federal tax on your winnings, along with any state taxes. That’s the new top tax rate under the Tax Cut and Jobs Act, signed into law by President Donald J. Trump on December 22, 2017. If you won Powerball or other major lotteries before then, you’d pay 39. 6 percent, and that 2.6 percent difference means you keep tens of thousands or even hundreds of thousands of dollars more in your pocket.

If you are a big winner, it’s critical that you receive professional tax advice. This is not a time to try and do this on your own, and remember, you can now afford to hire the best to keep your tax bite as low as possible. That may include making large donations to your favorite charities and receiving a tax break.

Powerball Lump Sum Versus Annuity

Powerball winners can receive their money in two ways, either as a lump sum or through an annual annuity. If you opt for the first method, you won’t get the entire amount if you are the sole winner. With the annual annuity, you’ll eventually receive the entire amount, but it is remitted to you over a period of 30 years of annual payments. Most winners choose the lump sum option, even though they are potentially giving away millions of dollars. Perhaps that makes sense for an older winner who doesn’t expect to live another 30 years, but younger winners should discuss the situation with a tax professional. For example, a Powerball Jackpot Analysis for November 2018, shows a winner could receive $107 million in an annuity, but just $61 million if they decide to take the funds in a lump sum. The winner would receive $3.56 million annually for 30 years under the annuity distribution, paying federal tax of $856,000 plus any applicable state taxes. The bottom line, sans state taxes, is $2.7 million annually. The person going for the lump sum distribution of $61 million pays just over $14 million in federal taxes, for a total of about $46 million not counting state taxes. That’s a nice chunk of change, but over 30 years, the winner who took the annuity will receive a total in the range of $81 million, nearly double the lump sum amount.

Taking the Annuity

When the monetary difference is so great, why do most Powerball winners decide to take the lump sum rather than the annuity? Odds are these are folks who didn’t consult a tax attorney or other financial professional beforehand. They may think an annuity ends when they die, but that’s not the case with Powerball or other major lottery wins. If the winner dies before receiving all of the payments, the remaining payments become part of their estate. There is a downside, however. The IRS will collect estate tax based on the annuity’s future value if the winner dies not long after hitting the jackpot. Powerball has a provision that can convert the annuity into a lump sum if the estate can’t pay the tax owed, but such conversions aren’t permitted in every state. Find out whether this is allowed in the state in which you bought your ticket.

Perhaps you want to enter the world of the mega-rich very quickly, and an income of a few million a year doesn’t quite make it. If that’s the case, perhaps the lump sum is a better alternative, but it’s important that you “protect yourself from yourself,” as the New York Times puts it. There are plenty of lottery winners who end up broke because they made huge purchases with these winnings, and gave money to the long-lost friends and relatives who seem to appear out of the blue when they hear you’ve struck it rich. With an annuity, if you make a bad choice one year, there’s always a big check waiting for you the following year.

Other State and Federal Deductions

If you’re a big winner, but owe back taxes, child support or have student loans outstanding, expect to have those payments deducted from your winnings. If you bought your ticket in a city or county that imposes its own taxes on lottery winnings, you would have those monies deducted as well. On the national level, if you’re not a U.S. resident, you’ll pay a flat 30 percent in federal withholding on your prize money.

Does Nevada Tax Gambling Winnings

Video of the Day

Gambling Taxes By State

About the Author

A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including PocketSense, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.