Gambling Winnings Subject To Self Employment Tax
Brian and Jan are married and file a joint return. Brian is self-employed and Jan has wages subject to withholding. Brian estimates that their joint tax liability, including self-employment tax, will be $20,000 for 2015. Jan had federal income tax withholding of $4,000 in 2014 and expects the same amount in 2015. Additionally, you will have to pay self-employment tax on your winnings that casual gamblers are not subject to. What Gambling Winnings Are Classified as Income? You are required to report any winnings from lotteries, raffles, horse races, or casino gambling as income. It doesn't matter whether your winnings are in the form of cash or prizes.
- Gambling might be an enjoyable pastime for some and it might provide a nice adrenaline rush when you win, but your winnings are subject to federal income tax, and possibly to state taxes as well. The IRS requires that you report the money as income, although it does allow you to claim a deduction for at least some of your losses.
- First let's look at self-employment taxes: As a casual gambler there's no self-employment tax. As a professional gambler your net winnings are subject to self-employment tax. Net winnings are the amount remaining after all offsetting gambling wagers (losses) and after other allowable expenses such as travel, meals, and so on.
There are two main tax benefits of filing taxes as a professional gambler. First, it allows you to net your wins and losses which leads to a much lower AGI which in turn affects a great deal of tax deductions. Second, it allows you to deduct expenses incurred while gambling such as food, travel, and equipment. However, professional gamblers must pay self-employment tax which is considerable - recreational gamblers do not pay this tax.
Gambling Winnings Subject To Self Employment Tax Calculator
Deciding on whether you should file as a professional is a very complex decision that is full of risks and uncertainties. However, given the complexity of the tax code even figuring out the amount of savings/cost of choosing professional over recreational is extremely difficult without basically doing your taxes twice. To evaluate taking a risk you must be aware of the reward - this calculator is designed to help you quickly estimate the monetary amount you stand to gain or lose by filing as a professional gambler.
Gambling Winnings Subject To Self Employment Tax Exempt
Two important notes. First, this calculator does not take into account every possible scenario and is only an estimate. It is based on the criteria I used to make this decision for myself; I hope to expand it with time. Second, the calculator will not tell you whether you should file as a professional - it simply estimates the financial gain/loss of doing so to help you determine if the risk and hassle is worth the benefit. You should consult a tax professional who specializes in gambling.