Tax Laws on Winnings

When you win a big jackpot, the last thing you want to think about is paying taxes on the winnings. If you like to gamble online, it’s important to know that you have to report winnings to the government when you file your taxes. Amounts smaller than $600 do not need to be reported, but when you win any amount that is $600 or more, the payer has to collect your social security number and report it to the IRS.

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The IRS states that winnings in excess of $5,000 after the wager is subtracted from the total must have 25% automatically deducted from the amount paid to the winner. This means that if you wagered $5 and you won $5,006, 25% of the total winnings will be deducted immediately for tax purposes.

Even if you do not trigger W-2G form to be submitted to the government, you are responsible for reporting all winnings throughout the year on your tax forms. If you won a raffle, $25 scratch ticket or won at bingo, all of these activities are considered taxable income.

Now, for the good news about gambling and taxes. If you gamble on a regular basis, you can claim losses up to the amount of your winnings. Whether they are bad bets at the racetrack, scratch ticket losses or casino debt, you can claim your gambling losses along with your winnings when you file your taxes.

Make sure that if you claim gambling losses, they are not lower than the standard deduction you would receive anyway. It doesn’t make sense to do itemized deductions for gambling losses of $2,000 when you would otherwise receive a $6,100 standard deduction.

Gambling is fun and can provide a great outlet for stress relief and supplemental income. More and more websites and mobile platforms are offering a greater variety of games and payment options. If you are an active gambler, knowing the tax laws and understanding that you can claim losses is important when you go to file your taxes.

Save any scratch tickets that you may have bought that are losing ticket and save betting stubs from any horse track you visit. The more proof you have of any gambling losses, the better off you will be if the government decides to audit your return.

If you gamble online, you will have proof of gambling debt from money transfers out of your bank account. Keep good records and you will avoid any potential issues when you claim gambling debts to offset any winnings.

It is important to remember that all of your winnings over $600 will be reported to the government and you must report these winnings. Smaller amounts will not be reported, but it is still considered additional income and you have an obligation to the government to report these amounts too. Be as clear as you can when filing your taxes and report all losses accurately. If you are a consistent gambler, you will have losses and winnings every year. The best way to avoid penalties is to be an accurate tax reporter.

What Piece of the $787 Billion is Yours?

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You could read the entire stimulus bill (the American Recovery and Reinvestment Act of 2009) online at the Library of Congress that President Obama signed into law today. Or…you could just find out how it affects you right here on Christian Finance Blog!

First things first. You’ve probably heard that the new bill has a tax credit on your paycheck. It’s called the Make Work Pay credit and it’s worth 6.25% of any earned income in 2009. The max is $400 for singles making less than $75,000 and $800 for families with $150,000 or less combined income. It will be distributed through payroll for the last 26 weeks of the year. So it equates to about $15 a week for single filers who qualify for the $400. This will not come through your tax refund like the last stimulus. It also provides a one-time $250 payment for those who don’t work and retirees.

The next big tax credit in the new bill is the $8,000 New Homebuyer credit. This is different from the $7,500 new homebuyer “credit” that was supposed to be paid back over 15 years. The new $8,000 new homebuyer credit is a real tax credit, not an interest-free loan. It actually reduces your tax liability. Even if your tax bill is less than $8,000, you’ll get the difference back. If you overpaid your taxes throughout the year, you’ll get your regular refund plus the $8,000 extra! Sounds like a good deal to me!

So how do I qualify? You have to purchase a home between January 1, 2009 and November 30, 2009 and be a first-time homebuyer. To qualify to be a first-time homebuyer, you must not have owned a primary residence home within the last 3 years. It’s okay to have owned investment property or a vacation home as long as you didn’t live in it for most of the year. Also, you need to stay in the new home for 3 years to keep the tax credit. Income restrictions are the same as the Make Work Pay credit; $75,000 for singles and $150,000 for married filing jointly.

The next part of the bill that may affect you is the Car Buyer tax deduction. This is a tax deduction not a tax credit (which is more valuable). A tax deduction only reduces your income so it’s only worth the amount times your tax rate. The deduction allows you to deduct the state and local sales tax for any new car, truck, R.V., or motorcycle that was charged on the purchase during 2009. This won’t help you if your state doesn’t have a sales tax and it’s an above-the-line deduction so you don’t have to itemize to get the deduction. Income restrictions are $125,000 for single filers and $250,000 for joint filers.

Next up is the American Opportunity Tax Credit for 2009 and 2010. This tax credit increases the existing Hope Scholarship tax credit from $1,800 to $2,500. Income restrictions are $80,000 ($160,000 for married filing jointly). Partial credits are available to those making up to $90,000 ($180,000 filing jointly). Also related to this is the increase of the Pell Grant to $5,350 in 2009 and $5,550 in 2010.

For those of you who are unemployed, there’s also help for you in the bill. Cobra coverage (which allows the unemployed to keep health insurance from a previous employer) will be subsidized up to 65% of Cobra premiums for up to 9 months if you laid off between September 1, 2008 and December 31, 2009.

Unemployment benefits are also going to be increased by an additional 20 weeks (and 13 weeks more in certain states where unemployment is higher than 6%) and $25 additional weekly. Also, the first $2,400 is tax exempt in 2009 on your federal income taxes.

There are other portions of the stimulus bill like increased food stamp payments and deductions for energy efficient appliances and others. I may not agree with some of Obama’s policies but I’ll take free money any day! Bring it on Prez!

Get Your Free Tax Questions Answered

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From now until January 31, 2010, TurboTax is answering your tax questions! Just go to freetaxquestion.com from 8am to 5pm Pacific time to request your tax advice. All you do is submit a personal, federal tax-related question online and a tax expert will call you back at the time you request.

You can also ask questions on their “Live Community” message boards. What a great way to get a jump on your taxes or to plan any tax-saving moves before the end of the year!

IRS Corrects a Mistake…in my favor!

You know that I recently e-filed my taxes with TurboTax. Well, my refund was just direct deposited into my bank account and to my surprise, it was $300 more than I had expected. So I went to the IRS website to check on the status of my refund. And guess what? There was an math error in my return that the IRS corrected in my favor and gave me an extra $300 to my refund! I was surprised because TurboTax did all the calculating for me. I guess even computer software isn’t perfect!

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If you want to check on the status of your tax refund, you can check it at the IRS website and Where’s My Refund.