Stump the Tax Expert Question

 “My son is in his second year of college, I’m paying most of his tuition. He has a small scholarship, and he has a part-time job. He recently went to Vegas with some buddies, and won over $10,000. I told him he would have to pay taxes on that, but he seemed to think he didn’t need to. Doesn’t he?”

Unfortunately, his winnings will be taxable. The taxable amount will depend on what type of gambling the winnings are from. If the amount is won on slots he may be able to net the winnings by any slot machine losses from the same day as the winnings. The losses must be documented (receipts or frequent player’s card). If he cannot document the losses or his winnings were from any other type of gambling he cannot net the losses against the income. If the money won cannot be offset, it will have to be reported on the son’s personal return. He should have received a W-2G from the casino because the winnings are over $600.

In the past, the parent was able to claim the student as a dependent because they provided more than half of his upkeep and he was a full-time student. In this case, the amount won will also be used to determine the support test for dependency. If the son spent the entire winnings amount on himself, has a job, and received scholarships, this will all be included to determine dependency. If the total of these amounts constitutes more than half of the amount needed for his upkeep, he cannot be claimed as a dependent by his parents for this tax year. The son would report the education expenses on his return, and he will also use his personal exemption and standard deduction on his return.

If the total of the income is less than half of the upkeep, the son will file a return claiming the gambling winnings and his part-time job. The parents will still keep his dependency exemption and the education credits on their return.

If you have a tax question that is stumping you submit it in the comments and we'll do our best to address it in a future article.

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