Congratulations! You’re probably here because you won some type of prize, lottery, or game of chance. You’re also here because you now realize that Uncle Sam needs his share of your winnings.

Gambling Winnings

Gambling winnings are reported on line 21 of the 1040 (other income). Many taxpayers incorrectly believe that they only have to report what is reported to the IRS via form W-2G. Actually, you need to include ALL income derived from gambling activities, not just what was reported to you on a form W-2G.

Different types of gambling income include:

• Raffles
• Bingo
• Slot Machines
• Table Games
• Lottery Tickets
• Prizes and Giveaways (such as a car)

Every dollar that is derived from those various activities needs to be reported. Luckily, as you will see in the next section, you can deduct gambling losses up to your winnings on your itemized deductions.

Gambling Losses

As we mentioned before, gambling winnings are included in your income. Thankfully, if you have gambling losses, you can use them to offset some of your winnings. These losses are reported on line 28 of Schedule A (itemized deductions).

So basically, you can deduct you losing scratch-off lottery tickets, money that you lost at the slot machines, etc. Also, keep in mind that you can only deduct losses up to the amount of your winnings. For example, let’s say you had $60,000 in gambling winnings and $70,000 in losses. You can only claim $60,000 in losses on your Schedule A. As you will see in the next section, in order to claim these losses, you need to keep impeccable records.

Record Keeping

The tax law states that you must keep records (a diary) of all your winnings and losses due to gambling activity. The winnings and losses need to be listed separately and you cannot just have a letter from a casino showing your net profit or loss.

Your gambling diary should include all of the following:

• The date and type of your specific wager or wagering activity
• The name and address or location of the gaming establishment
• The names of other persons present with you
• The amount you won or lost

Yep, you read that right. You need to document all of that. It’s best to get into the habit of documenting each win and loss while gambling, right down to the last scratch-off ticket!

According to the IRS, there are around $1.3 billion in unclaimed refunds from the 2005 tax year. These unclaimed funds are for individuals who did not file a tax return in 2005. Due to the three-year look back, individuals have until April 15th, 2009 to claim these refunds or they may be gone for good.

IRS Commissioner Doug Shulman says, “especially in these tough economic times, people should not lose out on money that is rightfully theirs. People should check their records, especially if they had taxes withheld from their paychecks but were not required to file a tax return.  They may be leaving money on the table, including valuable tax credits that can mean even more money in their pockets.”

The IRS estimates that half of those that could claim these refunds for the 2005 tax year would receive more that $581. Many of the individuals in this category had too little income to file a return but had taxes withheld from their wages or paid quarterly estimated taxes. There is no penalty assessed by the IRS for filing a late return qualifying for a refund.

Many low-income workers may not have claimed the Earned Income Tax Credit (EITC) or even knew about it. Unmarried individuals that earned less than $35,263 in 2005 and had more than one qualifying child are eligible for the credit. Keep in mind that you must have earned income and not be able to be claimed by someone else in order to qualify for the credit. If you are single with one child the threshold is $31,030. If you are single with no children and at least 25 years old, you can qualify for the EITC with less than $11,750 in income. The rule on being claimed as a dependent also applies. These numbers are slightly increased for individuals filing married filing jointly.

Double check your 2005 taxes and make sure you filed if you were due a refund. If you didn’t file, get those returns in by April 15th of this year to get what you are owed!