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Taxing your winnings
American tax law would tax the fair market value -- not the retail value -- of this Porsche Carerra 911 that Maria Sharapova won at her income tax rate if she filed her taxes in the U.S.
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Well here's one thing you don't want to forget if you're lucky enough to win on a game show, or the lottery or any other random windfall -- Uncle Sam WILL take his pound of flesh. Game show prizes in any form are taxable. But the specifics can get a little complicated. So we asked tax specialist Louis Barajas to break down tax law behind income from winnings.
Did you know that the amount of money you can win without having to report it on your taxes is different for horse race betting, slots and poker? If you win big, an accountant needs to be in your future. Take a listen by clicking the play button in the audio player above to learn more about these party-pooping tax laws.
We want to get the word out that gambling is bad policy for America, so explaining how to report gains from gambling without saying that 'no gambling' is the best gain is not fair and balanced reporting. We all know the negative consequences of gambling, we know it is regressive taxation that replaces corporate and wealth taxes, so there needs to be a shout out....a disclaimer if you will, as to what NPR has for decades described as something society needs to avoid!
I'm not the first to comment that your guest is wrong about reporting gambling winnings. In addition to being wrong, he could be subject to serious malpractice. Internal revenue code & all related law states all income is taxable unless specifically exempted. Gambling winnings and other prizes and awards are not exempted. From way back in my college days & income tax accounting class: Failure to report income is evasion. Evasion is a felony. You can go to jail for it, not just penalties & interest.
Reporting by the payer - 1099s, etc. - is a separate set of rules & regulations and has nothing to do with whether or not a payment received is taxable. Just because you didn't receive a 1099 doesn't mean you didn't receive the money or other prize.
Shameless plug from me, a CPA - it is always better to ask a qualified professional sooner rather than later.
Tess,
This was a great interview! However, I feel you could have done a slightly better job on the journalism in this piece. I hope we hear an on-air correction about tax reporting requirements in your next episode. Even through the radio I could tell that your jaw was on the floor when Mr. Barahas, amateur tax preparer, insisted, FOUR TIMES, that you don't have to report certain winnings. He must have received his license in either Texas or Alaska.
For the record you do, as a matter of law, have to report your gambling winnings regardless of the amount.
Arron Tarp
Boston, MA
All poker and gambling income is taxable and must be reported. There is no amount that one "can win without having to report it"!
Only wins of a certain size are reported by the operating business entity (e.g. poker room, casino, racetrack), but ANY size win is REQUIRED to be reported by the player. To fail to do so is tax evasion, often very serious tax evasion for an active poker player, which really does not come across in this piece.
Indeed, many people overlook this issue, since our society is used to only owing income tax when it's withheld from their paycheck. However, poker and gambling winnings are a type of income where withholding is rarely possible, and thus require active recordkeeping and self-reporting by the taxpayer. You could easily fill an entire segment with a brief overview of the self-reporting requirements and the implications of the tax code for poker players. Due to the way that gambling winnings are taxed, at least a million American poker players end up owing more than 100% of their winnings on their taxes at the end of the year (often without realizing it)... I'm sure at least a few of them are listeners!
