If you lose money gambling, you might be able to deduct it on your tax returns. However, before you can claim the deduction, you'll have to meet two important requirements. First, the IRS will want you to itemize all of your deductions. Second, you can only deduct gambling losses to the extent that you have gambling winnings.
Claiming the Gambling Deduction
The way that you claim the gambling deduction is relatively simple. First, you have to file Schedule A and itemize your tax deductions. This means that you can't claim the standard deduction, but you can write off expenses like your state income tax, mortgage interest, property taxes, car registration tax and charitable donations. If you have gambling losses, you write them off as 'other miscellaneous deductions' on line 28 of Schedule A, where they get combined with your other itemized deductions to reduce your taxable income.
The gambling establishment should report the amount of the gambling winnings and any tax withheld on Form W-2G, which is issued to the winner and to the IRS. In addition to issuing a Form W-2G when withholding is required, casinos will also issue a Form W-2G when withholding is not required for the following type of winnings.
Deduction Rules
The IRS will only let you deduct losses to the extent that you win. For instance, if you lose $3,000 on one trip to the casino and win $2,100 on another trip in the same year, you can write off $2,100 in losses to offset the $2,100 in winnings, leaving you with a total of $900 of taxable gambling income. If you lost $1,000 on one trip and won $9,500 on another, though, you could claim the entire $1,000 in losses to reduce your net income from gambling to $8,500.
Proving Your Gambling
If you claim a gambling loss deduction, you will have to prove that you are entitled to it. Casinos send a form W-2G when you win to let the IRS know that they paid you, but it's up to you to establish your losses. The IRS requires you to keep tickets or receipts and a diary of your winnings and losses to substantiate your deduction. If you can get a printout from the casino of your gambling activity, such as if you use a player's club card, it may be helpful.
Professional Gambling
The rules for professional gamblers are different. A professional gambler makes a business out of gambling. He can write off his gambling losses and any expenses that he incurs for gambling -- like travel -- to offset gambling income. Since gambling is a business, he would file a Schedule C to report his income and expenses and would also have to pay self-employment taxes on his profits.
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About the Author
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the 'Minnesota Real Estate Journal' and 'Minnesota Multi-Housing Association Advocate.' Lander holds a Bachelor of Arts in political science from Columbia University.
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When you file your federal income tax this year, be sure to account for any gambling winnings. That’s taxable income, and if you’ve won enough money, the casino has filled out a form and reported that income to the IRS.
That might sound like bad news, but it’s not all bad news. If you’ve kept a diary of your losses at the casino, you can use that to offset your winnings. You only pay taxes on your net winnings from the casino.
But you can ONLY deduct losses up to the amount you won. You cannot deduct more than that. Also, if you’re going to take this deduction, you do have to itemize your return.
I like to suggest to people that they keep a blog and sell advertising on it as a side hustle. If you do that, it’s theoretically possible to consider any money you spend at the casino a tax deduction. I’m not an accountant or a lawyer, so consult a professional before following this strategy.
You can read the official IRS information about gambling income on the IRS website. I’ll provide further coverage and observations in this post.
How to Keep a Gambling Diary
If you gamble at all in a casino, you should keep a gambling diary. This just tracks your wins and losses. You should include the following information in your gambling log:
- The dates you were gambling
- The games you were playing
- Where you were gambling
- Who was with you
- How much you won or lost on the trip
You should also keep supporting documentation. This might be the form that the casino provides when you win a jackpot. It could also be the receipts from the ATM for the money you withdrew to gamble with.
You can also ask the casino to give you a record of your action based on what is reported when you used your slots card. And yes, you should always use your slots card while you play.
What Does the IRS Say About Gambling?
The information presented on the IRS website is aimed at casual or recreational gamblers. If you’re operating a casino or bookmaking operation, this information might not apply to you.
The most important piece of information on the page is that yes, your winnings are completely taxable. You are required to report that income.
They provide examples of casual gambling activity that might count:
- Casino games
- Horse betting
- Lotteries
- Raffles
Cash isn’t all that counts as income either. If you win a car or a vacation, the fair market value of that prize is taxable.
As I pointed out earlier, you can deduct losses, but only up to the amount that you win. If you saw a net loss for the year, you can only deduct the amount you won.
How Much Tax Do I Owe on My Gambling Winnings?
As of this writing, the tax rate for gambling winnings below $5000 are a flat 25% of the amount you won. But that’s only if you’re a recreational gambler.
If you’re a professional gambler, you pay tax on it at the same rate as your taxable income. Professional gamblers must file taxes as if they’re self-employed.
What About State Taxes?
There are 50 individual states in the United States of America. Each of them has its own law regarding taxes. Texas, for example, has no income tax at all. It does, however, have a higher sales tax than most other states.
So, yes, some states require you to pay taxes on your winnings, while others might be more forgiving. I recommend that you check with an accountant or a tax attorney regarding your specific situation in your state.
What About Nonresidents?
If you’re a nonresident, you report your income on Form 1040NR. The NR stands for nonresident. The tax rate for gambling winnings for a nonresident is slightly higher, 30% instead of the usual 25%. Nonresident aliens don’t get to deduct their gambling losses either.
There’s an exception for Canadian citizens gambling in the United States. They’re allowed to deduct their gambling losses just like American citizens can. This is part of a tax treaty between the United States and Canada.
We encourage you to double-check all this information with your tax professional in case of any changes. That’s just sound fiscal policy.
Other Countries Do It Differently
If you live in the United Kingdom, you do NOT have to pay income tax on your gambling winnings. Even if you’re playing in another country, if you’re an English citizen, you probably don’t have to pay taxes on your winnings there. That’s because the UK has treaties with other countries related to taxes that cover you.
That being said, if you’re a huge winner, the UK does charge you if you win more than a certain amount. They assume that anyone winning more than that amount isn’t a typical recreational gambler. After all, if you make enough money at an activity that it pays all your bills, it’s hard to not consider it income.
England is more typical of other countries’ attitudes toward gambling winnings and taxes than the United States. Most countries don’t tax money you’ve won gambling.
France, Mexico, and Spain are exceptions. Each of them require you to pay taxes on your winnings, although they don’t seem to charge as much as the United States.
Conclusion
Also, don’t use a blog post like this one to get the real details about paying taxes on your gambling winnings. Visit the official IRS site if you’re from the United States, and follow the instructions there.
Oregon Tax On Gambling Winnings
Or better, consult a tax professional. Finally, if I can offer one more piece of advice: Keep detailed records.
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