Gambling and the IRS: Pay Federal Income Tax on Gambling Winnings to Avoid IRS Bank Levy and IRS Lien issues
Win Big- Pay Federal Income Tax: If you took a trip and won some cash, you might think you're on easy street. But you'll be in from a rude awakening if you don't pay Federal Income Tax on your earnings. Yes, believe it or not, Uncle Sam wants a cut of those gambling winnings and you have to pay it when you pay Federal Income Tax, just like you're required to do with any other income you receive. Refusal to pay Federal Income Tax will result in IRS actions like an IRS Bank Levy or an IRS Lien.
Federal Income Tax: Pay to Avoid IRS Bank Levy & IRS Lien: The IRS wants to know every detail about your income. That means if you win money from casino, you must report those earnings when you pay Federal Income Tax. Even cash prizes won from raffles, lotteries, and Sunday Night's bingo round need to be reported to the IRS when you pay Federal Income Tax! They are all considered income by the IRS. If you don't pay, harsh IRS actions like an IRS Bank Levy or an IRS Lien awaits.
Didn't Report Winnings on Federal Income Tax: So what is the fate you suffer if Uncle Sam isn't privy to your winnings when it's time to pay Federal Income Tax? You'll be deep in debt to the IRS. You'll have to pay what you owe, plus interest and penalties if the debt was ignored for long enough. That means all that money you earned can be gone in a flash with an IRS Bank Levy, or your credit can be ruined with an IRS Lien. Here are some methods the IRS may use to collect from you when you don't pay Federal Income Tax:
IRS Lien: An IRS Lien has deadly effects on your credit report. With an IRS Lien, you'll be unable to buy a house, a car, or do anything that requires credit. An IRS Lien will remain on your credit report until your Tax Debt is paid in full! Additionally, it's next to impossible to have an IRS Lien removed while you owe the IRS. An IRS Lien may take a while to hit your credit report, but if you owe, it eventually will. When you owe the IRS, you owe an IRS Lien by default.
IRS Bank Levy: The IRS can actually freeze your bank account with an IRS Bank Levy! After your bank is frozen with an IRS Bank Levy, all your funds will be gone in 21 days if you don't contact IRS and work out a solution for payment. Fail to contact the IRS and work out a solution within 21 days, and the IRS Bank Levy will strip you of all your funds!
Wage Garnishment: Payday's here. But it's an unhappy day for you if you owe the IRS. The IRS can legally seize a portion of your paycheck to pay on your debt. They'll leave you with just enough money to pay for your basic needs. (Like buying food and keeping a roof over your head.) With both an IRS Lien and Wage Garnishment in action, normal life will be impossible.
Reporting Losses: The tables have turned. You can use the IRS's rules about reporting gambling wins and losses to your advantage. You can deduct gambling losses. But the losses may only be deducted if you itemize deductions and you also have gambling winnings. To claim the gambling losses use Form 1040A. But keep in mind, the losses you deduct may not be more than the gambling income you report. Be careful not make any mistakes during this important step if you want to avoid IRS Lien issues.
Don't Forget: You have to prove it! You have to provide receipts, tickets, statements and other records to show your winnings and your losses.
Playing it safe: If you are already in debt because of not reporting your earnings, there's still hope. Don't think you can get away with saying you didn't know the tax rule. According to the IRS, ignorance of the law is never considered an excuse. Instead, actively find a way to pay the debt. If the IRS isn't cooperating with you, consider hiring a tax professional that can help you remove the IRS Lien and get the best payment offer possible.
