Every once in a while, when the Mega Millions or Power Ball jackpot reaches  a high amount, I will stop by the gas station and buy myself a ticket. The next morning, after checking the numbers and realizing I did not match any numbers, I usually throw the ticket away. How many of us have done that? Powerball, Mega Millions, Carolina Cash 5, scratch offs – we've most likely all bought a ticket at one point or another. While I have not been lucky enough to win, I hear of people winning all the time. More common are the winners that do not hit the jack pot, but that win a few bucks here or there.

We all know that if you hit the jackpot, they take out the taxes before they even give you the money, but are people taxed on their small gambling winning? Yes, you are taxed on all of your gambling winnings. The IRS requires you to report all gambling winning as they are fully taxable. This includes lotteries, raffles, horse races, casinos, etc. These winnings would be included in "other income' on your tax return.   Legalized gambling will provide the taxpayer and the taxing authorities a 1099-G that reports gambling earnings to make sure that you do include it in your income.

Can you deduct gambling losses? Yes, but there are two catches. You would report these losses on your Schedule A (Itemized deductions). Therefore, if you do not itemize, you would not be able to deduct these losses.   You also can also deduct gambling losses to the extent of your gambling winnings.

What would you need to support winnings and losses? You would need to provide the IRS with receipts, tickets, or some statement showing your winnings and losses.    So keep those losing tickets during the year.

If you have any questions on a specific scenario on what is taxable, consult your tax professional.