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Taxes on Lotto Winnings
If your prize is more than $600, the Internal Revenue Service requires the organization running the lottery to withhold 25 percent of your winnings from your payout. If you win a large prize and you elect to receive a lump sum payment, taxes will be withheld from the payout. If you elect to receive payments over a period of years, taxes will be withheld from each annual payment. You’ll receive a Form W2-G, which will show your total winnings and the amount of tax withheld. If you win less than $600 you’ll receive all your winnings at that time, but you still must pay taxes on the winning at the end of the year. Since lotto winnings are figured as part of your gross income, the amount of taxes you end up owing on your winnings may be less than 25 percent of the total, if you fall into a lower tax bracket. When figuring your tax bill, the IRS looks at your total adjusted gross income, not merely your
Reporting Lotto Winnings
Report all of your gambling winnings for the year, including lottery prizes, bingo winnings, raffle prizes and slot machine proceeds, on line 21 of Form 1040, under Other Income. If you have a Form W2-G, report the amount of taxes withheld from your winnings on line 64, “Federal income tax withheld from Forms W-2 and 1099.”
Deducting Gambling Losses
The IRS allows you to deduct your gambling losses, though you may not deduct more than you won. Even if you lost more than you won in real life, you may only deduct up to the amount of your winnings on your tax return. You must have records to support your claim of gambling losses. Keep a diary of your gambling trips and record each day’s losses and wins. Keep receipts for lottery tickets you purchase. You may even keep all of your losing lottery tickets to substantiate your losses.
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