Gambling Income Taxes for US Players

In the 1950s the IRS tried giving the tax returns of citizens reporting illegal income to federal authorities for prosecution. The Supreme Court ruled against this practice stating that forcing people to report criminal activity to the government violated the fifth amendment right against self-incrimination. The IRS next tried turning over information received on tax returns to individual state authorities, but the high court ruled that this maneuver was unconstitutional as well. Today the IRS does not and cannot legally turn over tax returns to law enforcement. But please be forewarned: You are dealing with lawyers and complex laws here and their intent is not to have your best interests at heart, so tread lightly and arm yourself with adequate legal consul before venturing forth.

In light of the passage of the UIGEA, your accountant or tax lawyer may recommend that you keep your online winnings to yourself under the Fifth Amendment. Here is the current IRS position:

You must include your gambling winnings in your income on Form 1040, line 21. If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings.