Question

Juan has been a professional gambler for many years. He loves this line of work and enjoys the evenings out and participating in tournaments around the world. He believes the income he earns from gambling is tax-free and has not been reporting it. He has decided to buy a condo in Las Vegas and is trying to secure a mortgage. The banker told Juan that his gambling income is taxable.

Juan has heard you are a tax wizard and wants to meet with you. In preparation for that meeting, you will use the tax research services to investigate the issues. According to primary authorities, what are 3 issues with the scenario above?

Answer 1

The primary authorities will be concerned about the proper collection of taxes. The issues with the given senario are as:

1- Juan's winnings are reported in the prescribed form, federal taxes are withheld at a flat rate of 25%.

2- Juan didn’t give the payer his tax ID number, the withholding rate is 28%.

3- Withholding taxes is required when the winnings minus the bet, are more than $5,000 or atleast 300 times the amount of the bet respectively.

Thus, a credit to the extent of withholding taxes is granted provided Juan had submitted the payer his tax ID number or else nothing would taxed as such because maximum amount has already been withhold as taxes with primary authorities.