1099-MISC box 3 for prizes where I put wager down

[An2425]

Hi all, I have a big issues and can’t find a straight answer anywhere. 

This year, I played online rummy games, where I put money in, play, and either win or lose.  I got quite a surprise when I was taxed on total winnings and not just what I withdrawaled.  I kept a lot of money in the game just to play, and didn’t realize all of this would be taxed! 

I got a 1099-Misc form with the amount won on box 3. 

How do I classify this on my tax return??  It’s prizes, but if I put a wager on it, am I allowed to show this as gambling winnings and deduct my expenses (ie the games I lost)?  Bc if not, sounds like I can’t deduct anything I put in. 

any help would be very appreciated! 

[ThomasM125]

Your winnings are classified as gambling winnings on your tax return. Your wagers are deductible up to the amount of your winnings, but as itemized deductions. So, unless you have enough itemized deductions to surpass your standard deduction, the deduction will not benefit you.

When you enter your gambling winnings in the Less Common Income section of TurboTax, under Prizes, Awards, and Gambling Winnings, you will be asked to enter your gambling losses. They will be applied to your itemized deductions and will be deducted from your gambling income if you are able to benefit from itemizing your deductions.

[An2425]

Thanks so much for this info. 

when u go to “less common income”, then “gambling winnings”, it tells me I need a form W-2G.  The winnings I got came on a 1099-MISC. can I put this information from my 1099-Misc down here, or will that be flagged by IRS since it’s not in right category? 

[KrisD15 · Accepted solution]

The IRS will want to see the 1099-MISC reported on your tax return. 

If you do not itemize deductions, the losses from the gambling will not be used, they will not be deducted from your income, they will not be deducted from your winnings

If you take the Standard Deduction, as most people do, there is no reason to enter your gambling loss. 

In this case (you use the Standard Deduction) the winnings will be taxed the same, if entered from a W-2G or as a 1099-MISC.

IF THE ADDITION OF GAMBLING LOSSES WILL BE ADVANTAGOIUS TO YOU please follow the steps listed below. 

You will enter the gambling winnings so that you can also enter the losses.

You will enter the 1099-MISC so that it matches what the the IRS has on file.

You will enter a NEGATIVE 1099-MISC to negate the double reporting.

Go to 

Wage & Income

Less Common Income

Prizes, Awards, and Gambling Winnings 

It first asks if you have a W-2G, select No.

Next, enter the amount won from the 1099-MISC

Continue and enter the amount of losses on the following screen. 

Click Done

Enter the 1099-MISC as it is reported. 

Wages & Income

1099-MISC and Other Common Income

Income from 1099-MISC    START  or  UPDATE

Next, enter a negative adjustment

Wages & Income

Less Common Income

Miscellaneous Income, 1099-A, 1099-C     START

Scroll down to "Other reportable income"    START

Type "Gambling reported twice" or something similar that will let the IRS know what you are doing 

Enter the same total amount of the 1099-MISC to zero it our (enter as a negative number) 

Click DONE

The total winnings will be on Schedule 1 line b2 and carried to line b4

The 1099-MISC will be on line z2b

The adjustment is on line z12

The amount from Schedule 1 flows to Form 1040 line 8

[An2425]

THANK YOU SO MUCH!  Wow, these instructions were amazing.

A few follow up questions:

- is there anywhere within irs rules that states that prizes that had a wager put down to get income can count as gambling winnings?  I’m nervous that they will reject it. 

- it’s ok to put that the gambling was a hobby, right?   
- if I put my losses are the same as my winnings, will that raise red flags to the irs?  Even if the amount is pretty material?

[KrisD15]

HERE is a link that explains how the IRS defines Gambling. Basically the main point is that you have the risk of losing. 

Therefore if someone won a prize, but they did not need to buy a ticket, (a name was drawn from a hat) that would not be gambling. So yes, if you had to pay to play, that would be gambling. You are at risk of losing.

Yes, you would indicate that gambling is a hobby. If you were a professional gambler, you would file Schedule C as self-employed and different rules would apply you how you claim the income. 

As long as you're honest and have documentation to support what you report, you should report the loses, even if they are more than what you won. (only the same amount of loss will be allowed on Schedule A).

Lots of people lose as much or more than they win, that's why casinos make money. 

HERE is an IRS Online Interview that might be helpful. 

[An2425]

I want to give you a hug. Thank you