Gambling winnings should be reported to IRS

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Have you made a friendly wager with someone on an athletic event? Did you place a bet in the company office pool for the Super Bowl?If you got lucky and won, you owe part of that money to the Internal Revenue Service."People who win $100 here or there usually don't report it," said Howard Davis, president of Davis, Davis & Associates, a Pittsburgh certified accounting firm. "But any kind of gambling winnings are considered taxable income."Many people don't realize that gambling winnings are taxable, and many who do simply choose to ignore the law, especially if they didn't win enough (less than $600) for a casino or race track to report the payout to the government."The reality of the situation is anytime you win less than $600 it is very difficult, if not impossible, for the IRS to track it," said Bob Dudzinsky, a tax partner with BDO Seidman LLP in Philadelphia.On the flip side, gambling losses also are deductible to the extent of your winnings. Gamblers can't deduct losses that are more than their winnings, and those losses must be taken as itemized deductions. So, depending on a person's circumstances, he or she may not even get the full benefit of the deduction."Even though they win $1,000 and lose $1,000, they may still end up paying taxes on the winnings," Dudzinsky said.There is one exception, though.If a person is deemed a professional gambler and that is how he makes his living, the rules are completely different. Then, all losses are deductible and certain costs incurred to gamble -- such as hotels and travel -- are deductible. But the net income could be subject to self-employment taxes, meaning the person will pay into Social Security.But the vast majority of gamblers are nonprofessional. Depending on a person's tax bracket, he or she could owe up to 35 percent of winnings to the federal government."Technically, according to the tax code, if you walk outside for lunch and find money on the sidewalk, you owe taxes on it," said Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants, in Washington."You technically owe a tax if you acquire an asset of any sort," Ochsenschlager said.But it's ultimately the winner's responsibility to let the IRS know how much he may have won, found or received. And because the IRS has to rely heavily on taxpayers to report small amounts of income, it's no wonder the government often gets shortchanged.An IRS analysis of tax returns for 2005, the latest year for which data are complete, shows that 1.8 million taxpayers reported almost $25 billion in gambling income. That includes winnings from casinos, racetracks, lotteries, raffles and fair market values of cars, houses and other noncash awards."Clearly, there are all types of gambling winnings from office pools to the once-a-month poker game that is subject to takes," said Alex Kindler, a CPA with the Horovitz Rudoy & Roteman accounting firm in Pittsburgh."Honestly, I don't think it's a high-compliance area and I don't think it's currently something on the IRS radar screen."But if you do report income from gambling and want to deduct gambling losses, keep in mind the IRS requires proof such as receipts, tickets, statements and even a diary of wins and losses with dates and names of those you were with.You'll have to keep these records for at least three years from the date of your return.Davis said IRS auditors are suspicious of people who might claim to have paid for lottery and racetrack tickets that may really have been bought and discarded by others.If you're going to use the tickets to claim deductions, he said, "Make sure you don't have footprints all over them."(Tim Grant can be reached at tgrant(at)post-gazette.com.)(Distributed by Scripps Howard News Service, www.scrippsnews.com.)