Whether you roll the dice, play cards or bet on the ponies, all your winnings are taxable.
Gambling losses are indeed tax deductible, but only to the extent of your winnings. This requires you to report all the money you win as taxable income on your return. However, the deduction for your losses is only available if you are eligible to itemize your deductions. If you claim the standard deduction, then you cannot reduce your tax by your gambling losses.
Keeping track of your winnings and losses
The IRS requires you to keep a ledger of your winnings and losses from lotteries, raffles, horse and dog races, casino games, poker games and sports betting as a prerequisite to deducting losses from your winnings. Your diary must include the date and type of gambling you engaged in, the name and address of the places where you gambled, the people you gambled with and the amount you won or lost. Other documentation to prove your losses can include Form W-2G, Form 5754, wagering tickets, canceled checks or credit records and receipts from the gambling facility.
Limitations on loss deductions
The amount of gambling losses you can deduct can never exceed the winnings you report as income. For example, if you have $5,000 in winnings but $8,000 in losses, your deduction is limited to $5,000. You cannot write off the remaining $3,000 or carry it forward to future tax years.
Reporting gambling losses
To report your gambling losses, you must be eligible to itemize your income tax deductions on Schedule A. You are eligible to itemize deductions if your gambling losses plus all other itemized expenses are greater than the standard deduction for your filing status. This means that if you claim the standard deduction, you are still obligated to report and pay tax on all winnings you earn during the year. However, you will not be able to deduct any of your losses.
Only gambling losses
The IRS does not permit you to simply subtract your losses from your winnings and report your net profit or loss. And if you have a particularly unlucky year, you cannot just deduct your losses without reporting any winnings. If the IRS allowed this, then it is essentially subsidizing taxpayer gambling. The bottom line is that losing money at a casino or the race track does not by itself reduce your tax bill. You need to first owe tax on winnings before a loss deduction is available. Therefore, at best, deducting your losses allows you to avoid paying taxes on your winnings, but nothing more.
Six Tips on Gambling Income and Losses from the IRS:
- Gambling income includes winnings from lotteries, raffles, horse races and casinos. It also includes cash and the fair market value of prizes you receive, such as cars and trips.
- If you win, you may receive a Form W-2G, Certain Gambling Winnings, from the payer. The form reports the amount of your winnings to you and the IRS. The payer issues the form depending on the type of gambling, the amount of winnings, and other factors.
- You must report all your gambling winnings as income on your Federal income tax return. This is true even if you do not receive a Form W-2G.
- If you are a casual gambler, report your winnings on the “Other Income” line of your Form 1040, U. S. Individual Income Tax Return.
- You may deduct your gambling losses on Schedule A, Itemized Deductions. The deduction is limited to the amount of your winnings. You must report your winnings as income and claim your allowable losses separately. You cannot reduce your winnings by your losses and report the difference.
- You must keep accurate records of your gambling activity. This includes items such as receipts, tickets or other documentation. You should also keep a ledger or similar record of your activity. Your records should show your winnings separately from your losses.
Need help figuring it all out? Received a W-2G from a casino? Contact an experienced Tax Attorney at JV LAW GROUP to assist you with the process. Call us today at (714) 752-3270 to get started.
