Tip 1:  ARE GAMBLING WINNINGS TAXABLE?
Uncle Sam’s answer is yes. Income tax is not only owed but even
withheld from certain kinds of gambling winnings. Score more than
$5,000 from any sweepstakes, wagering pool, or lottery and you’re supposed to pay withholding. Ditto on any other wager if the winnings are at least 300 times the amount of the bet. For 2002, the amount withheld is 27% of what you win minus your bet. It doesn’t matter whether you’re paid in cash, in property, or get an annuity (non-cash prizes are taxed at their fair market value, estimated by the IRS, of course – before you accept that Beamer convertible, make sure you have the taxes covered). 

Gambling winnings from bingo, keno, and slot machines are generally not withheld. However, you may need to provide the payer with a social security number to avoid withholding (if you don’t, 30% of your winnings can be withheld; this rule applies to keno winnings of more than $1,500, bingo and slot machine winnings of more than $1,200, and certain other gambling winnings of more than $600). If your winnings not subject to withholding, the IRS may expect you to make estimated tax payments (and if you don’t pay enough tax through withholding or estimated tax payments, you may be subject to a penalty – talk about gambling!). If a payer withholds income tax from your gambling winnings, make sure you file Form W-2G, Certain Gambling Winnings, showing the amount you won and the amount withheld (the tax withheld goes on line 59 of your 1040).

If the payer asks, you must supply your name, address, and social security number, and you must indicate whether you made identical wagers and whether someone else is entitled to any part of the winnings subject to withholding (there’s a form, 5754, Statement by Person(s) Receiving Gambling Winnings, you’re supposed to give to the payer). Identical wagers include two bets placed in a pari-mutuel pool on one horse to win a particular race. However, the bets are not identical if one bet is "to win" and one bet is "to place." In addition, they are not identical if the bets were placed in different pari-mutuel pools. For example, a bet in a pool conducted by the racetrack and a bet in a separate pool conducted by an offtrack betting establishment in which the bets are not pooled with those placed at the track are not identical wagers.

For additional information about what Uncle expects from you, visit the taxman in his lair at http://www.irs.gov/.