Gambling Winnings for a Retired Person

Today's tax question comes from "A+ Tax." The person asked, "An 88 year old retired, legally blind man won $3200 at a casino and did not have any taxes withheld. He wondered if he might owe anything because of the winnings, along with his SS income. His son claims his father as his dependent on his tax return. Does the father still have to file a return, something he hasn't had to do for several years? If so, does he have to claim himself as an exemption, and the son not be able to claim him this year?"

The retired father does not have a tax liability, but he should still file a tax return. Why? The IRS will receive a copy of Form W2G reporting his gambling winnings, and the IRS won't know for sure if he owes any tax unless a return is filed.

The father can still be claimed as a dependent by the son, as long as he meets all the criteria under the new rules for claiming a dependent.

Additionally, the father should claim the higher standard deduction for being elderly and blind. I ran a quick tax return with the following assumptions: Social Security benefits of $25,000 for the year, plus reporting the $3,200 in gambling winnings and the father being claimed as a dependent on someone else's return.

Based on these assumptions, the father has a standard deduction of $3,300. This fully offsets his gambling winnings of $3,200. Also, none of the winnings cause his Social Security benefits to be taxable, because his "provisional income" is under the $25,000 limit that would force some of his Social Security income to become taxable. For more information see my article on the Taxable Portion of Social Security Benefits.

Based on this scenario, I would recommend:

• the son continue to claim the father as a dependent, and
• the father file a return for 2005 to let the IRS know he has no tax liability.

I hope this helps!

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