Six Tips on Gambling Income and Losses

Whether you roll the dice, play cards or bet on the ponies, all your winnings are taxable. The IRS offers these six tax tips for the casual gambler.

If, like the vast majority of people, you’re a casual recreational gambler, you’re supposed to report all your gambling winnings on your tax return every year. You report the amount as “other income” on Schedule 1 of IRS Form 1040. You list them as 'other income' in line 21. A lot of people assume gambling is a private affair. However, if you have gambled recently, you will likely have to report this activity when you file your annual tax return(s). This is because gambling losses and wins do count as income and expenditures, both of which the Internal Revenue Service (IRS) is interested in. Don’t worry, though. Per IRC § 165(d) the deduction for gambling losses has been limited. For tax years beginning before 2018, a professional gambler could deduct all trade or business expenses incurred in gambling activities, and could deduct gambling losses up to the amount of gambling winnings. The total of multi-session wins would be reportable as “other income” on Form 1040 but the total of multi-session losses would be reported on Schedule A under “Other Itemized Deductions,” up to the amount of your winnings. Amount of your gambling winnings and losses. Any information provided to you on a Form W-2G. The tool is designed for taxpayers who were U.S. Citizens or resident aliens for the entire tax year for which they're inquiring. If married, the spouse must also have been a U.S. Citizen or resident alien for the entire tax year.

• 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’ll also receive a Form W-2G if the payer withholds federal income tax from your winnings.
• 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’re 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 diary or similar record of your activity. Your records should show your winnings separately from your losses.

Proof:

• Bingo and similar games: Keep records of the number of games played, the cost of cards purchased, and amounts collected on winning cards.
• Slot machines: Maintain a record of the machine number and all winnings by date and time the machine was played.
• Casino table games (e.g., blackjack, craps, poker and roulette): Write down the number of the table where you played and any casino credit information.
• Racing (horses, harness, dog, etc.): Keep track of the number of races, the amounts of your wagers and the amounts you won and lost.

For residents of Connecticut, Illinois, Indiana, Kansas, Massachusetts, Michigan, North Carolina, Ohio, Rhode Island, West Virginia, and Wisconsin, beware. These states do not allow amateur gamblers to deduct their losses from their winnings. For example, if an amateur gambler in Ohio wins $50,000 and loses $50,000, they may not deduct their losses even though they technically broke even.

This is not the case if the taxpayer is a professional gambler such as a professional poker player. They may deduct gambling losses from their state income taxes but they are aggressively challenged for their status as professional.

So remember to consider the tax implications for gambling winnings and losses and plan accordingly based on your gambling status and the state you live in.

IRS Resources

• Publication 525, Taxable and Nontaxable Income
• Publication 529, Miscellaneous Deductions
• Tax Topic 419, Gambling Income and Expenses
• Form W-2G, Certain Gambling Winnings

IRS YouTube Videos:

• Gambling Winnings and Losses – English Spanish ASL
• Record Keeping – English Spanish ASL

IRS Podcasts:

• Gambling Winnings and Losses – English Spanish

Follow us: @the_tax_lady TACCT on Facebook

More Articles

If you had a successful night at the slots or poker tables, you're going to have to share some of the lucky proceeds with Uncle Sam. The Internal Revenue Service generally requires that you report your gambling winnings and losses separately when you file your taxes rather than combining the two amounts.

Record Keeping

As you gamble during the year, you need to keep records of your winnings and losses so that you can support whatever figures you report on your taxes. The IRS permits you to use per-session recording, which means that instead of recording whether you won or lost each time you pull the slot machine, you can simply record your total for the session. Your records should include the date and type of gambling, where you gambled and if you gambled with anyone else, such as a home poker game. If you win more than $600, you should receive a Form W-2G from the casino.

Taxable Winnings

When figuring your gambling winnings, only include the winnings from each session rather than using losses to offset your gains. You have to include gambling winnings even if you didn't receive a Form W-2G from the casino. For example, if you gambled six times during the year, winning $100, $3,000, $4,000 and $6,000 but losing $5,000 and $2,000, your gambling winnings for the year are $13,100. This amount gets reported on line 21 of your Form 1040 tax return.

Where To Report Gambling Losses On Tax Return Form

Gambling Losses

To claim your gambling losses, you have to itemize your deductions. Gambling losses are a miscellaneous deduction, but -- unlike some other miscellaneous deductions -- you can deduct the entire loss. The deduction goes on line 28 of Schedule A and you have to note that the deduction is for gambling losses. For example, if you lost $5,000 on one occasion and $7,000 on another, your total deduction is $12,000.

Where To Report Gambling Losses On Tax Return 2019

Gambling Loss Limitation

Where To Report Gambling Losses On Tax Return Irs

You can't deduct more in gambling losses than you have in gambling winnings for the year. For example, suppose you reported $13,000 in gambling winnings on Line 21 of Form 1040. Even if you lost $100,000 that year, your gambling loss deduction is limited to $13,000. Worse, you aren't allowed to carry forward the excess, so if you had $87,000 in losses you couldn't deduct last year, you can't use that to offset the gambling income from the current year.

• tax forms image by Chad McDermott from Fotolia.com

Where To Report Gambling Losses On Tax Return 2017

Read More: