Received 1099K from Paypal for gambling winnings. I cant submit form in TurboxTax under other income,it says to include under self-employment but I don't own a business.

[polarpopking]

I can add the total under gambling winnings, but I believe I also need to fill out the 1099-K form so I file correctly and do not get flagged for anything.

[HelenC12]

For gambling winnings, there's no 1099-K entry form screen like there is for a W-2, in TurboTax. ​​​​​​Generally, gambling winnings are reported on form W-2G. You may enter your gambling winnings as if you received a W-2G. See How do I enter a W-2G?

You may also enter the gambling winnings under other reportable income. Follow these steps:

1. Sign into your TurboTax account.
2. Select Federal from the left side menu.
3. On the Wages and income screen, scroll down to Add more income. If you don’t see this, scroll down to Less Common Income and select Show more.
4. Select Miscellaneous Income, 1099-A, 1099-C and Start.
5. On the Let’s Work on Any Miscellaneous Income screen, select Other reportable income and Start.
6. On the Any Other Taxable Income? screen, select Yes.
7. On the Other Taxable Income screen, enter a description like Gambling winnings reported on Form 1099-K, the amount, then Continue.
8. On the Other Miscellaneous Income Summary screen, confirm the entry and select Done.

To check the entry, Preview your 1040. Other reportable income is reflected on Schedule 1, line 10.

After you've finished entering all of your gambling winnings, we'll ask about any losses you may have had. Losses can be deducted up to the amount you reported winning, but only if you itemize.

[Opus 17]

By leaving off the 1099-K, you may get an IRS letter.  You would respond to the letter by describing the circumstances, showing proof such as emails or other documents that it was gambling winnings and not self-employment, and showing that you already reported the gambling winnings on your tax return.

You could, if you wanted to take an extra step, file by mail.  Include a copy of the 1099-K and a letter explaining that it is included as gambling winnings and not self-employment. (You would not include detailed documentary proof at this stage.). However, because of the current IRS backlogs, I would not recommend filing by mail, but keep your documents and proof with your other tax papers for at least 3 years so you can reply if you get a letter. 

[larryjben]

The problem with entering the amount of winnings and then deducting losses on schedule A is... My taxes go from about $800 to over $4000.  Have approx. $139,000 in online casino winnings but approx. $136,000 in loses. Don't mind paying taxes on my $3000 winnings but on $139,000 is not a good thing. 

[RaifH]

Entering gambling winnings and then taking the losses as an itemized deduction is the only proper way to report this 1099-K in accordance with the IRS.

Unfortunately, this forces you to itemize your deductions when before it sounds like you were getting a greater deduction from the standard deduction. Since you are now being forced to itemize to claim the gambling losses, be sure to enter any other itemized deductions you may be eligible for, including state and local taxes, mortgage interest, charitable contributions, and medical expenses. 

To be clear, the difference in your tax due is not because you are paying taxes on the $139,000 in reported winnings. It's because of the $3,000 in actual winnings plus not being able to use the standard deduction.

@larryjben

[larryjben]

Wow, hard to understand how $3000 increase in earnings causes a $3000 increase in taxes.  Can anyone explain that to me?

[Opus 17]

@larryjben 

Because you don’t have a $3000 increase in earnings, you have a $139,000 increase in earnings.  Gambling losses are only deductible as itemized deductions, which means that you only get a tax benefit if your itemized deductions are more than your standard deduction, which is already accounted for in your tax return.

The standard deduction is $12,550 for a single person and $26,100 for married filing jointly.  Other itemized deductions besides gambling losses are mortgage interest, state and local income tax or state and local sales tax, and donations to charity.  Let’s assume you paid $4000 in state tax, you live in an apartment, and you make no gifts to charity. You would receive the standard deduction of $12,550.  When you enter $136,000 of gambling losses, your total itemized deductions are now $140,000. But, since you were already getting a tax benefit of $12,550 of itemized deductions, your additional deduction is not $136,000, but $127,450.  So the amount of your gambling winnings that you actually pay tax on is about $12,000 rather than $3000.

To see this in action, you need to print out your tax return with and without the gambling income and deductions and follow the math. If you are using TurboTax online, you won’t be able to print your official tax return until you pay the filing fee. But, you can go back and make changes and print copies after paying the filing fee and before actually transmitting your return, and you will not have to pay again when you are ready to transmit.

[Critter-3]

The extra income also will make more of your SS benefits taxable and/or will eliminate or reduce certain credits or deductions.   As already suggested ... print a copy of the 1040 with and without the gambling income & Sch A deduction to see this in living color. 

[larryjben]

I did itemize deductions using the gambling losses and additional things. Property tax, vehicle tabs etc. It still showed a tax liability of $4000. I will redo it and see if it comes out different. I am not using online preparation, I purchased the desktop version for the ability to email up to 5 returns.

[Critter-3]

Ok ... good ... you can switch to the FORMS mode at will and look/print at any time ...

If you did not already know ...   

This is my mini version of  a tutorial  that should be in the downloaded program: 

 

What is Forms Mode?

Forms Mode lets you view and make changes to your tax forms "behind the scenes."

If you're adventurous, you can even prepare your return in Forms Mode, but we don't recommend it. You may miss obscure credits and deductions you qualify for, and you may forget to report things that will come back and haunt you later.

Forms Mode is exclusively available in the TurboTax CD/Download software. It is not available in TurboTax Online.

Related Information:

• Why would I use Forms Mode?
• How do I switch to Forms Mode in the TurboTax for Windows software?
• How do I switch to Forms Mode in the TurboTax for Mac software?
• What is-the-meaning-of-all-the-different-colors-in-forms-mode

If you want to play around with different figures and tax scenarios without affecting your original return you can ….

• >>>In the TurboTax CD/Download software by creating a test copy: 
• 1.  Open your return in TurboTax. 
• 2.  From the File menu, choose Save As. 
• 3.  Give the copy a new name to distinguish it from the original (for example, by adding "Test" or "Example" to the file name). 
• 4. Click  Save. You are now safely working in the test copy and anything you do here will not affect the original. 
•  https://ttlc.intuit.com/questions/1900642-how-to-make-a-test-copy-of-your-return

• >>  use the WHAT IF tool: 
• - Click Forms Icon (upper right of screen) or Ctrl 2 (forms view) 
• - Click on the Open Form Icon 
• - In the “Type a form name.” area type What-If (with the dash), click on the name of the worksheet - click on Open Form 
• - You will see the worksheet on the right side of the screen; enter the information right into the form 
• - To get back to interview mode - click on the Step-by-Step Icon (upper right of screen) or Ctrl 1

It's always a good idea to make a backup copy of your tax data file, in case your original gets lost or corrupted. Here's how:

1. From the File menu in the upper-left corner of TurboTax, choose Save As (Windows) or Save (Mac).
2. Browse to where you want to save your backup.
   • Tip: If you're saving to a portable device, save it to your computer first to prevent data corruption. Then, after completing Step 4, copy or move the backup file to your device.
3. In the File name field, enter a name that will distinguish it from the original tax file (for example, add "Backup" or "Copy" to the file name)
4. Click Save and then close TurboTax.
5. Restart TurboTax and open the backup copy to make sure it's not corrupted. If you get an error, delete the backup and repeat these steps.

If you make changes to your original tax return file, repeat these steps to ensure your original and backup copies are in-synch.

Related Information:                             

• Retrieve a Tax File from a Portable Device
• What's the difference between the tax data file and the PDF file?

AND save it as a PDF so you have access to a copy even if you don’t have the program still installed and operational :

• How do I save my return as a PDF in the TurboTax software for Windows?
• How do I save my return as a PDF in the TurboTax software for Mac?

AND protect the files :

• How can I protect the tax files on my computer?

[larryjben]

Oh yes, I did see my social security is now almost completely taxed. Is there anything I can do to avoid this or will i just have to bite the bullet and pay the $4000?  

[larryjben]

Also, could I file as a professional gambler and would that be beneficial to me?

[JohnB5677]

I would caution you about filing as a Professional Gambler. 

According to the IRS, a professional gambler is actually classified as a trade or business.   A taxpayer conducts gambling activities in a businesslike manner such as maintaining complete books in a gambling log or diary. You would have to meet stringent criteria about the amount of time spent, and that you have no other substantial income from any non-gambling activities. 

The IRS can conclude that you do not rely solely on gambling profits for living expenses, and therefore it can be labeled a hobby instead of a profession.