People often forget that any winnings from gambling or a contest must be reported to the Internal Revenue Service (IRS) as income. In addition, you must pay federal taxes on all this money. If you do not then you will be responsible for all unpaid back taxes and fees that result.
According to the IRS taxes must be paid on all gambling income, including but not limited to:
- Lottery winnings
- Raffle prizes
- Horse or dog race winnings
- Any money won at a casino
- Fair market value of non-cash prizes such as cars, trips, etc.
Depending on the circumstances, such as the value or your winnings, you may be provided with an IRS Form W-2G by the person or business issuing your prize. They may even withhold federal taxes directly from your award.
If you gamble often it will probably be a good idea to keep a record of all your winnings and losses. Why? Because you can deduct your losses from your winnings if you have kept proper records of your activity. However you cannot claim a loss of more then your total winnings.
To report your winnings to the IRS you should write the total value of all gambling winnings on line 21 of IRS Form 1040.