Category Archives for Income Tax

Your gambling winnings in 2013 are taxable in 2013

Gambling Winnings in 2013

Money you win in any gambling operation in the USA is taxable. Your gambling winnings in 2013 when you play bingo, blackjack, poker or a video slot machine are no different from any other kinds of income you earn. Report the correct amount on your personal IRS 1040 income tax return.  Gambling winnings are a taxable form of income subject to federal income tax withholding up to 25%. Gaming income includes any form of wagering, from dice to betting on horses in a race.  Casual gamblers are wise to follow some tips from the professional.

  • Report your winnings because, more often than not, the government will receive an income document concerning the wagering transaction. Seek professional assistance when reporting the fair market value of prizes such as cars or trips.  Your gambling winnings are typically reported on IRS Form 1040 Line 21 as “Other Income”.
  • Under some conditions, especially if you can itemize your deductions using Schedule A on your IRS 1040 personal tax return, you can offset your gambling winnings with gambling losses.  Any losses are reported separately as miscellaneous deductions and will offset your winnings. Do not report the difference between your winnings and your losses directly on IRS Form 1040 Line 21 Other Income.
  • Keep accurate records of all your gambling activity as if you were running a business.  Proper documentation includes receipts, tickets, and daily logs of activity including the times you play and the locations of both the machine and the physical location of the store or casino.   Do not depend on Cash In/ Cash Out reports issued by resorts, hotels, or casinos; substantiate the claims of gambling losses with detailed ATM withdrawals or bank records.

Backup tax withholding is calculated at 28%. You do not have to withhold income tax from wagering transactions like bingo, keno, and slot machines, if your winnings are $5,000 or less.  A casino reports your winnings on IRS Form W-2G if the total winnings are $1,200 or more from a bingo game or slot machine.  Keno winnings are reported if they are $1,500 or more.  Your winnings from a poker tournament are reported if they are more than $5,000.

Payments of wagers are made when they are actually (or constructively) paid to the winner.

You must report this form of income on your personal tax return in the year you they are made.  Consider using IRS Form 5754, Statement by Person(s) Receiving Gambling Winnings, if the recipient is not the actual winner or a member of a group of two or more people.

For further information, review IRS Publication 525, Taxable and NonTaxable Income, and IRS Publication 529, Miscellaneous Deductions, or seek professional assistance.

 

Other 2013 references about reporting gambling winnings and losses:

Reporting Gambling Winnings | Bankrate.com
http://www.bankrate.com/finance/money-guides/reporting-gambling-winnings.aspx
Feb 4, 2013 Check out line 28, “other miscellaneous deductions,” on Schedule A. That’s where you report any gambling losses. You can claim up to the total 

Taxes in the Back » Nonresident Gamblers Take a Step Closer to …
http://taxdood.com/
Commissioner that a nonresident gambler may calculate gambling winnings or losses on a per-session basis. To elucidate the practical significance of this holding, the court explained the tax outcomes when applying each …

Tax Topics – Topic 419 Gambling Income and Losses
http://www.irs.gov/taxtopics/tc419.html
Apr 1, 2013 The following rules apply to casual gamblers. Gambling winnings are fully taxable and must be reported on your tax return. Gambling income 

Pilarski: Report gambling losses, but the burden of proof is on you …
http://www.rgj.com/article/20130212/ENT/302120042/Pilarski-Report-gambling-losses-burden-proof-you
Feb 12, 2013 QUESTION: I enjoyed your question last week regarding gambling wins and taxes. I have another question regarding my tax liability on a win.

Reporting Gambling Winnings | Bankrate.com
http://www.bankrate.com/finance/money-guides/reporting-gambling-winnings.aspx
Feb 4, 2013 Check out line 28, “other miscellaneous deductions,” on Schedule A. That’s where you report any gambling losses. You can claim up to the total 

 

2013 Alimony Tax Treatment

People involved in a divorce and alimony payments must understand the tax significance of paying or receiving alimony to properly report their income. The IRS categorizes alimony as amounts paid according to a divorce or separate maintenance legal decree. The IRS Tax Topic 452, Alimony Paid, updated May 30, 2013, describes the following conditions associated with paid alimony.

  • The payment is neither child support nor a property settlement
  • Neither spouse files a married joint income tax return
  • Payments are made in cash or its equivalent rather than property
  • A payment is received by some third party on behalf of one spouse
  • Legal decrees do not state a specific payment is not alimony
  • IRS rules defining legal separation are in effect when payments are made
  • There is no liability for payment after death

 

The IRS does not consider any of the following as alimony:

  • Child support
  • Noncash property settlements whether lump sum or installments
  • Voluntary payments not required by an agreement or court decree
  • Payments considered part of community property income
  • Use of or payments for maintenance of a payer’s property

 

The payer of alimony deducts the payment from their reported income on their tax return; the recipient of alimony adds alimony payments as taxable income. In the event, a court decree orders both alimony and child support, the amount of alimony paid out is the balance of payment after child support has been paid in full.

It is not necessary to use a Schedule A, Itemized Deductions to adjust income when paying alimony. The adjustment to income must be entered on IRS Form 1040 or Form 1040NR, Schedule NEC. Make certain you provide the Social Security number of the recipient of the payments. Failure to properly report this information is subject to a $50 penalty. You cannot file IRS Form 1040EZ, Form 1040A, or Form 1040NR-EZ. You can find online references to this topic and specific income tax forms at the IRS website. Seek professional advice when filing your federal or state income tax return.

See IRS Publication 504, Divorced or Separated Individuals for additional information. The 2004 version of this publication includes special information regarding the tax treatment of alimony before 1985.

 

Other online references related to how alimony is reported on US Income Tax:

What is Income Tax on Alimony? – Ask Tax Questions
In the US, the alimony payment received, as stated in the law, is part of the income tax on alimony on the tax return of the recipient in the current tax year it the payment is received. Just like any other income taxes, there are also exceptions. In general your ex-spouse or the former spouse can The alimony paid is then reported on the Form 1040 in Line 31. Also, you must report the full amount of the alimony or the separate maintenance you have received during the 

Alimony is considered taxable income – Raleigh Family Law Blog
However, what many do not know is that alimony is considered taxable income. Newly divorced individuals who receive spousal support often learn this the hard way. Alimony is considered to be income, and is therefore taxable. Depending upon the size of the awarded alimony, taxes can be incredibly steep, especially if it comes as a surprise at the end of tax season. It is recommended that 20 Follow us on Facebook · Follow Us On LinkedIn · FindLaw Network.

 

2012 Earned Income Tax Credit Eligibility – Tie-breaker rules

Eligibility for the 2012 Earned Income Tax Credit (EITC) is an important issue for many married and individual tax payers. This tax credit (26 USC § 32 – Earned Income) was incorporated into the Internal Tax Revenue Code (IRC) in 1975 to encourage work (earned income) and offset social security taxes especially for those who receive what is described as low- to medium-ranges of income. The amount of the refundable credit, in excess of any personal taxes owed, has increased over the years and is now significantly affected by whether or not a household includes qualifying children.

The test for a qualifying child, namely; relationship, residency, and age, figures prominently in US tax code and especially in determining EITC eligibility. In order to qualify, the child must meet criteria in all three requirements. But what happens when, for example, in a divorce situation, a qualifying child spends half their time with one parent and the rest with the other. Alternatively, neither biological parent cares for a child.  How do you resolve sometimes complicated real-life situations? If two individuals file separate tax returns citing the same child in their claims for EITC or dependency exemptions and some of the criteria match, the IRS provided tie-breaking rules to determine which claim is valid as follows:

  • The parent has a superior claim when considering a qualifying child
  • When parents file separate tax returns, the child’s residency determines eligibility. The parent with whom the child resides longest during a tax year has a valid claim.
  • When a child resides equal lengths of time with each parent, the parent with the highest adjusted gross income (AGI) has the valid claim.
  • When a child resides with individual(s) other than their parent, the taxpayer with the highest AGI has a valid claim.

In general, a taxpayer is responsible for preparing documentation that clearly supports assertions they make about income, expenses, and kin on their annual tax return. Validation of “qualifying child” claims, especially for EITC, is especially important when:

  • The claimed qualifying child is not a son or daughter
  • The taxpayer’s age compared to the claimed child is not consistent with commonsense
  • Young taxpayers claiming a qualifying child may, themselves, be a “qualified child”.
  • Claims involve disabled individuals

EITC is an important provision of the US tax code designed to help offset tax burdens of low- to medium income individuals and households. Unfortunately, an increasing number of these claims are reviewed and sometimes disallowed every year.  Seek professional advice if you receive an IRS notice referencing your tax credit claim.

An easy-to-read user guide explaining the Earned Income Tax Credit (EITC) is available through the IRS website.  More detailed information is available in IRS Publication 596, Earned Income Credit (EIC) 2011. Seek professional advice especially when applying for EITC to ensure you not only receive the maximum tax benefit allowed under the law but also document your claim in the event, at some future time,  you are challenged regarding its legitimacy. You can read about required documents you need to prove an EITC claim in IRS publication, IRS Form 886-H-EIC-2011.

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