How Much Taxes Do You Pay On Casino Winnings In California

Although the winnings from a game show can change a lucky winner’s life instantly, their after-winning-life might not be as splendid and impressive as most of us think.

• How Much Taxes Do You Pay On Casino Winnings In California State
• How Much Taxes Do You Pay On Casino Winnings In California Today
• How Much Taxes Do You Pay On Casino Winnings In California Lottery
• How Much Taxes Do You Pay On Casino Winnings In California Now

You’re given a copy of the form as well. When a W2-G must be filed depends on the type of game you play and how much you win. For example, the casino must file a W2-G if you win $1,200 or more playing slots or bingo; but only if you win $1,500 or more at keno. If this income is not listed on your tax return, you’ll likely hear from the IRS.

1. Depending upon the amount of your winnings and the type of gambling, the establishment or payer may be required to withhold income taxes. In general, 24% of the amount is required to be withheld. In some cases, a backup withholding of 24% is required instead.
2. This means that you will pay 15.3% in taxes placing poker income under a Schedule C, where adding it on a 1040 as Other Income will not trigger this tax. The total percentage in 2012 was 13.3% due to the Social Security tax reduction during the recession. Schedule C filers will be able to deduct 6.2% of the tax as a business expense.

I always had the dream of making an appearance on game shows such as The Price is Right, Wheel of Fortune, and Let’s Make a Deal. The truth is, game show winnings are always a two-sided coin and often a suckers bet in my opinion.

While you’ll have magnificent on-air memories to perhaps cherish for years, you’ll also be taken to the terrible secrets of game show winnings: The burden of having to pay taxes on your winnings.

It’s something that you’ll never hear a game show’s host mention on TV, but you can always count on, that the IRS will always come for their share!

For this reason, let’s look at some issues revolving around paying taxes on game show winnings, whether it’s a new car, thousands of dollars in cash, or a fully-paid vacation to the Bahamas (which reminds me, I need a vacation.)

Are Game Show Winnings Taxed?

Yes, In the United States, winners have to pay game show prize taxes. This is basically because the government views game show winnings as taxable income. It doesn’t matter whether the prize is in liquid cash or non-monetary, the winners are required to pay taxes on prizes won.

Most viewers often assume that the winner is often given their money or prizes right away after the show. If only it were that easy!

I laugh at how deceptive this actually is

Check out this article about Andrea Schwartz who won big prizes on one of my all time favorite game-shows The Price Is Right. Winning ‘The Price Is Right’ Is Great, Until You Get The Tax Bill

Here’s a quick summary of the article:After winning any game show or contest, you’ll sign some paperwork and agree that you’re going to pay taxes on the prizes. When it’s all said and done, the winner will most definitely get a 1099-MISC tax form from the show’s organizers, who are also obligated to send a copy to the IRS. And even if they do not provide you with the 1099 tax form, you still have to report the value of the winnings. Failure to do so can result in huge penalties!

How Much Will You Be Taxed?

The amount of tax you’ll pay on game show winnings depends on where you live and how much you win. You’ll have to pay federal taxes, as well as state taxes. If you, however, live in states that do not have income taxes such as Washington, Nevada, Texas, Alaska, Florida, South Dakota, and Wyoming, you may not have to pay state taxes on your game show winnings.

You’ll still owe Uncle Sam though (The U.S. Federal Government.)

Just like in lottery winnings, depending on your tax bracket, the IRS often expects you to pay a top rate tax of 37% on the gross value of the prize won, and this is on Federal tax alone! So suppose you won $10 million on a game show in the state of California where I live, you’ll have to pay a state income tax of about 12.3% plus the federal income tax of 37%.

YOU COULD END UP PAYING NEARLY HALF OF YOUR WINNINGS IN TAXES!

Can You Avoid Paying Game Show Prize Taxes?

There are a few occasions when you can avoid paying game show prize taxes. For instance, game show winnings and other 1099 based income that are worth below $600 are not taxed by the IRS.

Another way to avoid paying game show prize taxes is by offering the winnings as gifts to friends and family members. Even though this means that you won’t keep the winnings for yourself, it’s a way to avoid the tax burden.

Either way, you need to speak with a Financial Advisor to understand how much and how to properly report on that year’s tax return!

Better To Win Cash Than A Car Or Vacation

Recently I had a conversation my CPA about whether someone is better winning cash or an actual prize. What I learned was, it depends. But most of the time, you’re probably better off taking the cash. If you win cash, you can simply set aside a portion of your winnings to cover the tax.

If you win a non-cash prize it can be quite a burden since you’ll have to pay taxes based on the value of your winnings. And the value can be highly subjective. For example, you could win a car and they say it’s worth 40,000 dollars, but, you could buy the same car on a weekend close-out sale from your local dealer for 35k.

Wheel of Fortune is famous for giving cash prizes and vacation trips. The value of those trips will be counted as income for you, I recently read an article on MarketWatch which tells exactly what can happen.

Matt McMahan who won cash and prizes worth $16,400 and two vacation trips valued at $15,300.

The IRS not only taxed his cash and prizes winnings, but he had to pay tax on the two vacations. Fortunately, most shows do offer cash prizes in place of the trips, so you should consider going for the cash. Especially if you have to raise cash to pay for the taxes on the actual prize. Is it really free then? I’d take the cash and book my own vacation with as many discount deals as possible.

If You Do Ever Get Lucky And Win Remember…

• Consider paying the applicable or estimated taxes on any prize as soon as you win.
• Always know the exact value of your winnings. Show organizers may inflate the value to entice more participants or to reduce their tax obligations.
• Always consider going for cash instead of non-cash prizes such as a vacation.
• Do not be afraid to turn down any winnings if they may become a tax burden.

Remember, to cover yourself, always seek out professional help for your tax planning etc.

Have you won any game show prizes before? If so, I hope these tips can help you out.

Gambling and the Law®: By Professor I Nelson Rose

The Internal Revenue Code is unkind to winners -- and it doesn't much like losers, either. The federal government taxes gambling winnings at the highest rates allowed. So do the manystates and even cities that impose income taxes on their residents. If you make enough money, in a high-tax state like California or New York, the top tax bracket is about 50 percent. Out ofevery additional dollar you take in, through work or play, governments take 50 cents.

Of course, the tax-collector first has to find out that you have won. Congress and the Internal Revenue Service know gambling is an all-cash business and few winners indeed wouldvoluntarily report their good luck. So, statutes and regulations turn the gambling businesses, casinos, state lotteries, race tracks and even bingo halls, into agents for the IRS.

Big winners are reported to the IRS on a special Form W-2G. If winnings are to be split, as with a lottery pool, winners are reported on a Form 5754.

Pooling money to buy lottery tickets is common among employees and friends. But whether there are two or 200 in the pool, there is going to be only one winning ticket, and somebody has toturn it in. If you are that someone, make sure you fill out a Form 5754. If your share of a $5 million prize is $1 million, you do not want to be stuck with paying income tax on the entire $5million.

Gambling has become such big business that the IRS receives nearly four million Forms W-2G and 5754 each year. This tells the tax-collectors that nearly four million big winners are outthere, waiting to be taxed.

But the IRS does not always wait. The government wants to make sure it gets paid. What good does a W-2G do if the winner is a foreigner who is going to be in his own foreign country whenApril 15th rolls around?

So, the IRS not only wants reports filed, but often requires that a part of the winnings be withheld. As anyone who has a salary knows, withholding also allows the government to usetaxpayers' money for many months, without having to pay interest.

The withholding rate for nonresident aliens is 30%. Not coincidentally, the tax rate for nonresident aliens is also 30%. So, if a citizen of a foreign country wins $1 million cash at aslot machine in Las Vegas, he will find he is only paid $700,000. The remaining $300,000 is sent to the IRS. The foreign citizen is unlikely to ever file an income tax return, but the IRS getspaid in full anyway.

Citizens of foreign countries are also, of course, usually taxed by their own governments. So some countries have treaties with the U.S., which protects those foreigners from having topay the 30% withholding to the IRS.

U.S. citizens and resident aliens have it both better and worse than nonresident aliens. The withholding rate for gamblers living in American is only 28% (it was 20%, up to1992). Having the IRS take $28,000 out of a jackpot of $100,000 is painful. But, it can hurt even more when tax forms are filled out. There is no 30% maximum tax for people living in the U.S.,and really big winners often end up paying a lot more than 28% or 30%.

The one good news is Nevada casinos were also able to convince the IRS that they could not keep track of players at table games. They said that when a player cashes out for $7,000,they do not know whether he started with $25 or $25,000. So it is actually written into the law that there is no withholding or even reporting of big winnings to the IRS for blackjack,baccarat, craps, roulette or the big-6 wheel.

There is another general IRS rule that says anyone paying anyone else $600 in one year is supposed to file a report. The IRS has been going after casinos and cardrooms that runtournaments, forcing them to file tax reporting forms on grand prize winners. Here the IRS has the very good argument that the operator knows exactly how much a player has paid to enter thetournament and how much the finalists are given.

Is there anything a winning player can do to lower the bite of the income tax? And what about those who gamble and lose? Which is everybody, occasionally. The law does allow players totake gambling losses off their taxes, but only up to the amounts of their winnings.

How Much Taxes Do You Pay On Casino Winnings In California State

Of course, if you win, say $135,000, you can take off all gambling losses, up to that amount. If you gambled away, say $65,000, you would only have to pay taxes on the remaining, let'ssee: $135,000 minus $65,000 equals $70,000. The tax on $70,000 is a lot less than the tax on $135,000.

Of course, you have the small problem of proving that you actually lost $65,000. Large winnings may be required to be reported to the IRS; large losses are not.

How Much Taxes Do You Pay On Casino Winnings In California Today

One former IRS Revenue Officer, who quit government to open his own small tax preparation firm, thought he found the answer. One of his clients won a share in a state lottery: $2.7million, paid out over 20 years in installments of about $135,000, before taxes. The winnings were reported, but the tax return claimed gambling losses of $65,000. The IRS decided that $65,000was a lot to lose, and it sent an agent to conduct an audit.

The tax preparer found a man with an extremely large collection of losing lottery tickets and made a deal: he would borrow 200,000 losing tickets for a month for $500. The losing ticketswere bound in stacks of 100 and shown to the IRS auditor: 45,000 instant scratch tickets, 5,000 other Massachusetts lottery tickets, and 16,000 losing tickets from racetracks throughout NewEngland. So many losing tickets, that it would have been physically impossible for one man to have made these bets. The New York Times called it, 'one of the more visibly inept efforts at taxfraud.' They pleaded guilty eight days after being indicted.

How Much Taxes Do You Pay On Casino Winnings In California Lottery

By the way, the man who rented the tickets was not charged. It's not a crime to collect losing lottery tickets, only to use them to try and cheat the IRS.

How Much Taxes Do You Pay On Casino Winnings In California Now