Lucky in Vegas? Watch out for withholding taxes!
We’re breaking from our regular themes of small business and taxation to provide some information that may be of value to you as it related to one of our client’s experience. We are not in the business of Casino Tax Recovery but if you come across that circumstance this article is designed to help you be prepared and get an idea of how to deal with it.
Finally you’ve won big in Vegas after all these years of playing jackpots. Imagine your surprise when you go to collect your winnings and Uncle Sam has withheld 30% of which rightfully belongs to you. What do you do? The problem is gambling winnings are considered taxable income in the US.
You probably think, wow, Canada does not collect taxes on gambling winnings, we should be able to get all the money withheld back. The assumption is quite reasonable, but following through can be quite complicated.
Your tax refund is based on the difference of your gambling gains and losses, it means you have to capture all of the losses together with your gains. You cannot start the process to file until after December 31. Gambling winnings and losses are reported annually, and there is a form called 1042-S that needs to be used to apply for the tax refund.
You also need to substantiate your gambling losses with all sorts of details, like the date and type of gambling activity, the location of the gambling establishment, the names of other persons present with you at the gambling establishment, the amount you won or lost.
And a whole lot more, like the wagering tickets, win/loss tax statements, receipts from cashing cheques at the casino or withdrawing money from an ATM machine in or near the casino.
Plus other requirements like “buy in receipts” for tournaments and a record of money won and lost in cash games in the USA for the year of taxable wins. You should keep a daily journal on top of all the receipts mentioned above. It is also highly recommended that you get a Players Card to use to track your winnings and losses to support your US tax on casino winnings.
Yes, this is a cumbersome process and proper documentation is needed. Just like filing income tax returns, you need to provide all sorts of details to back up your claims.
On the other hand, all is not lost, there are exceptions to the games that requires withholding tax, like baccarat, blackjack, craps, roulette and Big-6 wheel. If the casino deducted tax on an exempt game you are entitled to a complete refund without reference to losses. By the same token, you cannot use the losses of the exempt games to offset your other winnings.
Lucky winners have until June 15 to file and recover the tax withheld for the current tax year and the prior 3 years. After June 15, you can recover the current tax year and prior 2 years.
Hopefully if you encounter this situation, then you’re aware of how to handle it. We suggest you look up Casino Tax Recovery services. Good luck!