Get Lucky, Win, Then Maximize Your Gambling Earnings By Doing This

01/20/2016 05:39 pm ET Updated Jan 19, 2017

Your eyes dilate. Your heart races. The hair on the back of your neck starts to tingle.

You've practiced for years for this moment, but that anxiety mixed with excitement is getting to you.

Your tells are beginning to show.

Hopefully, the rest of the Hold Em' table isn't able to predict that you have that winning hand. Or maybe you already won and the adrenaline is rushing through your veins, as you close your eyes and picture all the financial worries of your life begin to vanish into oblivion.

You're picturing or reliving the moment now. Going off to buy a yacht to live your dreams while traveling across the world.

Have you hit a jackpot lately? Or, maybe you won at a casino during your Vegas trip? Or, are you thinking about becoming a professional gambler after your huge poker win?

Having that shot to win big is an American dream come true. Wouldn't that be wonderful? Or, if you have have already done so, isn't it quite an amazing way to live life?

Even with winning, you have to one day bounce back to reality.

Much like nearly everything else in life, all of these situations have one thing in common: TAXES.

And yes, all gambling winnings are taxable by the IRS as well as many states. Your illegal winnings count as well. Al Capone would understand how you feel about the IRS.

Fortunately, there are 5 steps that you can make to minimize your tax bill to Uncle Sam.

1. Keep records of both your wins and losses.

You must keep a detailed record of your winnings and losses to decrease your taxes. This diary must contain the amount of win/loss on a per-session basis, the name and address of gaming organization as well as the date and type of wager. This per-session rule applies not only to US citizens but also to nonresidents as well. For more information, see the court ruling Park vs Commissioner. If you fail to keep the supporting records, the IRS will disqualify any losses.

2. Keep detailed records.

You must keep all supporting records to substantiate your win/loss diary records. Some of the supporting documents include W-2G form, cancelled checks, bank statements in case of withdrawals, credit card statements in case of cash advances as well as other wagering documents from a gambling establishment. Although, you do not submit any of these records with your tax return, you will be required to provide these documents in case of the IRS audit.

3. Know when your winnings are reported to the IRS.

You must remember that gambling establishments are required to report your winnings to the IRS if they exceed a certain amount. Specifically, gambling organizations will issue W-2G form to a player and the IRS if you win $1,500 or more from keno, $1,200 or more from bingo/slot machines, more than $5,000 from poker winnings, $600 or more from other games if your winnings are at least 300 times the wager.

4. Deduct business expenses.

You can deduct other business expenses if you are a professional gambler. If your office job became unbearable and you decided to gamble professionally, then the IRS is on your side. You can deduct various business expenses related to your gambling business (including your trips to gamble tournaments) and report your winning and expenses on Schedule C. There is one caveat, though: you must keep the records of all business expenses.

5. Know about 30% withholding on gambling winnings of nonresident aliens.

Gambling winnings of nonresident aliens are generally subject to 30% withholding tax or lower tax treaty rate if applicable because this income is not treated as effectively connected with a US trade or business. The withholding exemption applies only to winnings from blackjack, baccarat, craps, roulette, and big-6 wheel under IRC section 871(j). Additionally, gambling winnings of foreign nationals of certain countries are not taxable by the USA per a tax treaty negotiated with that country.

These 5 tips will keep you one step ahead of on your taxes.

Have any other questions on how to maximize your winnings or maybe you want to share other tips? I'd love to hear from you! Comment below!