By Nathan Vinson, Attorney
English, Lucas, Priest and Owsley, LLP
We’ve written previously about gambling taxes, highlighting this issue mainly because of the affection Kentucky has for horse racing. And as you well know, we’re in the midst of horse racing season. Keeneland had its spring meet, and Churchill Downs is now open for the season, with the Kentucky Derby set for May 7. This will be followed by the Preakness in Baltimore and the Belmont Stakes in New York, and the Breeder’s Cup in November in California.
Lots of us love to put a little dough (or a lot!) down on a horse at the track. There was some talk earlier this year of lowering the threshold at which tracks were required to report winnings to the IRS, but that never moved forward, so far as we can tell.
So, let’s review what your responsibilities are if you win at the track.
You can win in horse racing if you’re betting on a horse or if you own a horse. The government is only interested in knowing about your win as a gambler if you win $600 or more, and if your winnings are at least 300 times your wager (e.g. winning $600 on a $2 bet). Of course, all winnings, no matter what the amount, are taxable.
If you win $5,000 or more (lucky you!), the horse racing track withholds 25% and submits it straight to the government. If you win between $600 to $5,000, you’ll be asked to provide your social security number. It’s in your best interest to do so. If you do not, 28% will be withheld and submitted to the government.
The paperwork you’ll get includes an IRS Form W-2G (the “G” stands for “gambling”). The track will give you a copy of the completed form. You will need to fully complete it and submit it with your return at tax time. Depending on other income and deductions you report on your tax return, you could get some of those withholdings back.
Horse owners have a much more complex system in reporting earnings at the track. Just like any other enterprise, owning and racing a thoroughbred horse is a business. It is taxable. If your horse has a successful racing career and goes on to breed, the proceeds of that are also taxable.
Many horse owners will tell you there’s not a lot of money in horse racing. It is indeed an expensive hobby, and something most people do because they enjoy it. Having a stake in the outcome of a race that goes beyond placing a bet is fun, thrilling, and exciting (horse owners often tell us), which is why they really do it.
If your horse is in fact draped in a blanket of roses at the Kentucky Derby, you’ll win a $2 million purse to the horse owner, and you’ll be taxed on it. The same goes for the Preakness winner and the winner of the Belmont Stakes, and there is also a purse for the Triple Crown winner.