Hit the jackpot this past weekend in Oklahoma? Wondering what this means for your taxes? Are there any ways to reduce the tax hit?
Here are the basics:
How lottery winnings are taxed.
- First, you should be aware that lottery winnings are taxable for federal tax purposes. This is the case for cash winnings and for the fair market value of any noncash prizes you may win, such as a car or vacation.
- Your lottery winnings may also be subject to state income tax. But we live in Texas – so no tax right? Wrong.
Oklahoma requires that a non-resident of Oklahoma file a 511NR Income Tax Form if he/she has Oklahoma source gross income of $1,000 or more. You might then ask are gambling winnings considered “Oklahoma source gross income”? The answer is yes, income received from all sources of “wagering games of chance or any other winnings from sources withing Oklahoma” are taxable.
So What can you do to limit your tax hit?
- For Federal purposes you are entitled to a tax deduction for any gambling “losses” you had. These are taken as an itemized deduction but cannot exceed your winnings.
- Gambling losses aren’t subject to the 2%-of-adjusted-gross-income floor on miscellaneous itemized deductions. Nor are they subject to the overall limitation on itemized deductions.
- To establish your entitlement to a deduction for gambling losses, you should keep documentary evidence of the costs of your wagers—including both the cost of your lottery tickets and of any other wagering you do, such as betting on races, casino games, etc.
- The evidence should consist of receipts for tickets, wagers, cancelled checks, credit card charges, losing tickets, etc.
- In some cases, taxpayer estimates have been allowed, but you shouldn’t rely on this. Documentary evidence is preferable by far.