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Taxes on Legalized Gambling

Lottery Tax at a Glance

Lottery Tax at a Glance

Taxes on lottery winnings always apply on the federal level. In addition, taxes on lottery winnings must also be paid on the state level when applicable.  Almost every state does allow for legalized lottery play. 
However, some states do not have lottery taxes. For example, South Dakota, Tennessee and Texas do not impose taxes on lottery winnings, even though lottery play is legal in those states. Whereas states such as New Jersey imposes lottery taxes at a rate of eleven percent of winnings. New Jersey has the highest lottery taxes and other states may impose taxes on lottery winnings at rates as low as three percent. Currently, there are only two states that do not allow for legalized lottery play.
Federal taxes on lottery winnings are withheld when the winning amount, minus the amount of wager, exceeds five thousand dollars. Like winnings at casinos, a rate of twenty five percent of winnings will be withheld to help the taxpayer immediately meet their tax burden. If however, an individual wins less than five thousand dollars, they are still required to report their winnings on their tax forms, and pay taxes on that amount. 
In fact, winners will be issued a W-2G on winnings that exceed six hundred dollars, which helps them to report the winnings in the appropriate manner. If taxes on lottery winnings are paid in this way, taxpayers can still deduct provable losses from their taxable winnings. If taxpayers are unable to provide proof of losses, such as losing lottery tickets, they can apply the standard allowable deduction. 
In fact, lottery winners that have proof of loses below the standard deduction, should also use the standard deduction, because it allows for a better tax break. If a lottery winner has decided to receive payments throughout their lifetime, each payment will have twenty five percent withheld because they have won an amount that exceeds five thousand dollars. The company responsible for making those disbursements would be required to withhold that amount for lottery taxes before the winnings reach the lottery winner.
Any proceeds from gambling are required to be reported on taxes, regardless of the amount. The burden of lottery taxes may be reduced by using any provable losses as a deduction. Lottery winners of even five dollars, are required to pay lottery taxes on that amount as income.

Know the Taxes of Online Gambling

Know the Taxes of Online Gambling

Although online gambling is not technically legal in the United states, it is not explicitly illegal either. Many states have attempted to legalize online gambling so that they can benefit from tax revenue generated from the practice. However, there are often difficulties encountered by states attempting to legalize online gambling. 

Each state does have the power to legalize or criminalize any type of gambling that is legally allowed by the federal government. However, Federal laws on online gambling are rather difficult to decipher. So far, the only form of online gambling that is explicitly illegal is gambling on out of state sports.

There are many arguments that support the legalization of online gambling. Casinos provide jobs and a big boon in the local economy. In addition, casinos provide tax revenue on both the state and Federal level. However, revenue from an online gambling winnings tax would far exceed revenue from the casino gambling winnings tax. 

The online gambling winnings tax is expected to surpass revenue from the casino gambling tax based on past statistics on online gambling. The difficulties encountered by legalizing online gambling, however, make it difficult to implement. Those that take part in online gambling do enjoy a sense of anonymity. It is sometimes difficult to trace individuals online. It would also be difficult to verify the location of winners in order to impose the gambling winnings tax. 

In addition, most credit cards will not allow Americans to purchase online gambling money with credit cards from the United States. In order for each state to enjoy the tax revenue from the gambling winnings tax, the Federal government would first have to make the practice legal. Once the basic laws are implemented, it would become easier to collect the tax revenue.

If the gambling winnings tax were applied to online gambling, each state would directly benefit from the revenue generated. In addition, the Federal government could also tax online gambling. Overall, online gambling currently represents an overall loss for each tax jurisdiction. Many gamblers chose to enjoy the anonymity of online gambling as opposed to going to the casino. 

Those individuals represent a large amount of available tax revenue that is currently not being utilized in any tax jurisdiction in the United States. In fact, gamblers may choose online gambling as a manner of avoiding the gambling winnings tax. Those that chose to gamble legally are currently penalized by the gambling winning tax, while those that take part in online gambling, enjoy their winnings tax free. Contact tax lawyers for legal advice and assistance.

Taxes Placed on Legalized Gambling

Taxes Placed on Legalized Gambling

Legalized gambling is taxed at a high rate, as compared to other income. Any income, or winnings from legalized gambling, must be reported to the IRS on the applicable tax forms. Legalized gambling includes raffles, races, casinos and lottery. Any winnings from any of those venues, is considered a type of income which incurs a higher percentage of taxes than regular income. 
Winnings that incur taxes can include cash, prizes such as vehicles or other special offers available at casinos. Prizes from charity events, such as fifty fifty’s are also taxable at this higher rate. However, legalized gambling also allows winnings to incur taxes at a lower rate, if winners itemizes their winnings and losses and deduct any losses.
Those that gamble on a frequent basis, often itemize their winnings and losses. In order to deduct losses and incur lower taxes, gamblers must be able to provide proof of their winnings and losses. Often, gamblers request receipts from the casinos at which they play. Players cards, which are used to provide rewards to frequent gamblers, also allow casinos to keep accurate records on each gamblers behalf.  
For lottery winnings, taxpayers are required to keep losing tickets in order to deduct their losses from any winnings for that tax year. Generally, winners that take home winnings above a certain threshold, find that there is a certain percentage of those winnings automatically deducted before they receive their winnings. Generally, casinos withhold thirty percent of winnings, in order to be sure that the IRS gets taxes due from those winnings. For large winnings, taxpayers often find that thirty percent does not cover their actual tax burden and are in fact, responsible for a larger tax burden on all monies won. 
Taxpayers can lower their tax burden on winnings from legalized gambling, but only with proof of losses. Deductions from losses can not exceed the amount any gambler has won. In other words, losses from legalized gambling can not be used as deductions from regular income taxes. Casinos, and other legalized gambling venues, are required to report all winnings above a certain threshold, but they do not withhold taxes on all amounts. For example, casinos are required to report winnings above one thousand and two hundred dollars on slot machines, but they do not always withhold a percentage as an advanced tax payment.
Taxes on legalized gambling can get rather complicated. Winnings from legalized gambling incur taxes at one of the highest rates of any type of taxes. Winners can deduct any losses from legalized gambling in the same year, but only of they have proof of those losses. Winners of legalized gambling should expect taxes to equal about fifty percent of their winnings, even though only thirty percent is initially withheld.

The Controversy of the Legalization of Gambling

The Controversy of the Legalization of Gambling

In states that allow legalized gambling, the tax revenue generated far surpasses that of most other taxes. Currently, there are only two states that do not allow for legalized gambling. Although the reasons are different, neither state enjoys the benefits of a gambling tax revenue. New Jersey taxes lottery winnings at a rate of eleven percent. 
New Jersey also has legal casinos which generated three and a half million dollars in tax revenue in 2008. That tax revenue is used for a variety of taxpayer resources. Without those taxes, and the jobs at the casinos, New Jersey would likely have a larger budget deficit than what it is currently experiencing.
There are many arguments against legalized gambling. For example, there is the argument that legalized gambling supports organized crime and other violent crime. However, the revenue generated form gambling can pay for increased law enforcement, and also provides jobs which can prevent high unemployment rates. 
The reduction in unemployment has been directly correlated with a reduction of violent crimes in cities like Atlantic City, which has had legalized gambling since 1978. In 2008, over thirty five thousand people were employed by Atlantic City Casinos. Those employees had a total salary of over one billion dollars. Those employees helped New Jersey to rake in over three and a half million dollars in tax revenue from the gambling tax alone. If online gambling becomes legal, those numbers would be expected to rise sharply. 
While online gambling sites may not provide as many jobs as casinos do, the gambling tax revenue would far outweigh that of casinos. Studies of online gambling and resulting statistics, indicate that states like New Jersey would likely enjoy a gambling tax revenue of at least double the currentrate. Many online gamblers avoid casinos simply to avoid the gambling tax.
However, online gambling could also be detrimental to society. The anonymity associated with gambling online allows gamblers to feel more confident because nobody is watching. Online gamblers are likely to spend more money than those in a casino. The entire process of legalizing and taxing online gambling, could also be extremely difficult to implement. Gamblers could gamble on public computers, making their identities difficult to trace. Online gambling may actually encourage tax evasion because of the simplicity of avoiding identification when online.
The debate for legalizing gambling in any form, has raged for years. Online gambling presents a new set of issues associated with the debate. The tax revenue that could be generated form an online gambling tax, would certainly cover the issue of implementation. However, compliance with the laws could be difficult to enforce, especially when most online casinos are located outside of the United States.

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