How many of you have won money in the casino and wondered what you should do about those W-2Gs? Perhaps you were lucky and won $5,000 at the slot machine.

Our friends at the Internal Revenue Service consider this to be gambling income, and you are expected to report your winnings on your tax return whether a W-2G is received or not. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse and dog races and, of course, casinos. It also includes the fair market value of prizes such as cars, houses, trips or other non-cash prizes.

The amount of your winnings before deductions for any losses is reported on line 21 of your Form 1040 (your tax return) as other income. Unfortunately, many taxpayers are under the misunderstanding that you only have to report your winnings as other income after deducting your losses. This is not true. You can reduce the amount of money that is taxed by reporting your losses as part of your itemized deductions. If you itemize deductions on Schedule A, you can deduct your gambling losses for the year, but only up to the amount of your winnings that are reported on line 21 of your Form 1040. You will only want to itemize your deductions if they are more than your standard deduction. For some taxpayers, this is not always the case. You must report your winnings separately from your losses.

In order to prove your losses, you need to keep accurate and complete records. A statement from the casino is generally not sufficient alone to prove your losses. The IRS recommends that you keep a diary of your gambling activities, which is probably the furthest thing from your mind whether you are winning or losing. The IRS also states that in addition to your diary, you should have other documentation, such as wagering tickets, W-2Gs, canceled checks, credit records such as cash advances, receipts from bank withdrawals and any other receipts provided by the gambling establishment.

Randall Brody is an enrolled agent and a Liberty Tax Service franchise owner. You can contact him directly at LibertyTaxVegas@yahoo.com.

By Randall Brody