DAVID WILKENFELD, CPA, CA, canadian tax CONSULTANT

Rolling the Dice With the IRS

In Gambling Winnings, US Income Tax on March 26, 2010 at 2:47 pm

Contrary to popular belief, only thirty percent of what happens in Vegas, stays in Vegas.

Now we come to one of my favourite topics: Gambling. Like most people, I love gambling, except for the times when I hate it. It’s a complicated relationship.

One thing that’s never happened to me is winning big money in the United States (or anywhere for that matter). Here in Canada gambling winnings are generally tax-free. End of story. Not so simple down south.

Me and poker pro Gavin Smith at a Montreal charity tournament

Many Canadian winners at the casinos in Las Vegas or New Jersey are shocked to discover that the IRS gets a cut of their take. In fact, a 30% withholding tax applies to most gambling winnings by non-resident aliens. There are a few exceptions – no tax applies to winnings from blackjack, baccarat, craps, roulette, or big-6 wheel.

The next obvious question is, can a Canadian winner get back any of this U.S. tax withheld? Maybe. But you’ve got to be a bit of a loser and a great record-keeper to do so. (This doesn’t mean you’re a loser if you keep good records, just a bit anal. :-))

Canadians can deduct their gambling losses from their gambling winnings for the year to reduce the amount of U.S. tax payable. The deduction allowed is only for losses incurred in the same year as the winnings. In other words, you cannot claim accumulated losses from previous years.

In order to make the claim you must file a non-resident personal income tax return (Form 1040-NR), report your gambling winnings (excluding the activities where no tax applies), and deduct your losses as an itemized deduction. Unless you’re a pro, your net gambling winnings will be subject to the flat 30% tax rate.

You must be able to substantiate your losses for the year. Therefore, you should always keep your receipts, tickets, statements or other records that will prove how much you’ve lost during the year.

Good luck!!

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