• How To Write Off Gambling Winnings On Taxes Due
• How To Write Off Gambling Winnings On Taxes Owed
• How To Write Off Gambling Winnings On Taxes Without

Gambling winnings are not directly offset against your losses. Your gambling winnings are included in income in the full amount. Your losses are only usable if (1) you itemize your deductions; and (2) you can only use gambling losses up to the amount of winnings. Today’s post is more of a nuts-and-bolts explanation of how I personally calculated my net winnings and filled out the various tax forms associated with online gaming winnings. In most states, daily fantasy winnings of any amount are considered taxable income. If you win $600 or more in a year, your DFS site should send you a 1099-Misc tax form. For starters, you can only deduct losses up to the amount of your winnings, so any excess loss can’t offset other highly taxed income. Conversely, you might show a taxable profit. Suppose you have annual gambling winnings of $10,000 for 2017 and losses of $2,500.

Did you have gambling losses last year? If so, you may be entitled to a deduction. Here is what you need to know at tax return time.

The most important rule

The biggest single thing to know is that you can only deduct gambling losses for the year to the extent of your gambling winnings for the year. So if you won $2,500 gambling in 2014, the most you can deduct of your losses is $2,500 — no matter how much you lost. This limitation applies to the combined results from any and all types of gambling — playing the lottery, slots, poker, the horses, and all the rest. And the limitation applies to both amateur and professional gamblers.

After applying the losses-cannot-exceed-winnings limitation, the allowable gambling loss deduction for a person who is not a professional gambler is claimed on Line 28 of Schedule A (Itemized Deductions). If you don’t itemize, you get no write-off. Also, amateur gamblers can only deduct actual wagering losses. Other gambling-related expenses (transportation, meals, lodging, and so forth) cannot be written off.

An amateur gambler should report the full amount of his or her winnings as miscellaneous income on Line 21 on Page 1 of Form 1040. If your winnings exceed your losses, you cannot just report the net winnings on Line 21. Instead, report your gross winnings on Line 21 and your losses (up to the amount of your winnings) on Line 28 of Schedule A, assuming you itemize.

Over the years, quite a few court decisions have attempted to define what it takes to be a professional gambler. The bottom line is you must devote substantial time to gambling on a regular basis, and you must depend on gambling winnings as a meaningful source of income.

It also helps if you conduct your gambling activities in a businesslike fashion by keeping detailed records of wins and losses and developing and evaluating strategies.

If you can rightly claim professional gambler status, report your gross winnings as income on Line 1 of Schedule C of Form 1040 (Profit or Loss from Business). Report your losses (up to the amount of your winnings) and your allowable out-of-pocket gambling-related expenses (for transportation, 50% of out-of-town meal costs, out-of-town lodging, and so forth) as business expenses on Schedule C.

Note that a professional gambler’s allowable out-of-pocket expenses can be deducted in full on Schedule C without regard to the amount of winnings. In other words, you aren’t required to combine out-of-pocket expenses with gambling losses in applying the losses-cannot-exceed-winnings limitation.

Warning: The seemingly benign rule that a professional gambler’s winnings and losses belong on Schedule C can have a big negative impact in profitable years, because net Schedule C income gets hit with the dreaded self-employment tax. In some cases, this can make claiming professional gambler status more expensive than amateur status.

Form W-2G keeps winners honest

For most types of gambling at a legitimate gaming facility, you will usually be issued a Form W-2G (Certain Gambling Winnings) if you win $600 or more. The IRS gets a copy too, so you better make sure the gross gambling winnings reported on Line 21 of your Form 1040 (or on Line 1 of Schedule C if you are a professional) at least equal the sum of the amounts reported on any Forms W-2G you receive.

Record keeping basics

Whether you are an amateur or professional gambler, you must adequately document the amount of your losses in order to claim your rightful gambling loss deductions. According to the IRS, taxpayers must compile the following information in a log or similar record.

• The date and type of each wager or wagering activity.
• The name and location of the gambling establishment.
• The names of other persons (if any) present with you at the gambling establishment (obviously this requirement cannot be met at a public venue such as a casino or racetrack).
• The amount won or lost.

You can document winnings and losses from table games by recording the number of the table and keeping statements showing casino credit issued to you. See also IRS Publication 529 (Miscellaneous Deductions) at irs.gov.

Per-session record keeping is apparently OK

In theory, you are supposed to record each gambling win or loss — from each spin of the slot machine, each poker hand, and each horse race. Of course, nobody actually does that. Thankfully, the IRS relented a few years ago by saying that casual slot players can simply keep a record of the net win or net loss amount for each gambling session. The Tax Court appeared to endorse this per-session approach in a 2009 decision. The casual slot player should then report the sum total of net winnings from all winning sessions as income on Line 21 of Form 1040 (the amount should at least equal the total amount of winnings reported on any Forms W-2G you receive). The sum total of net losses from all losing sessions can be deducted on Line 28 of Schedule A, subject to the losses-cannot-exceed-winnings limitation. Presumably, the per-session approach of recording net wins and losses from each gambling session will also be considered adequate record keeping for other types of gambling for both amateur and professional gamblers. Poker players, take note!

2016 MarketWatch, Inc. All rights reserved.

How To Write Off Gambling Winnings On Taxes Due

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Gambling may just be a hobby to you, but there’s nothing casual about it when it comes to filing your federal income taxes.

Nearly two-thirds of Americans gamble, according to a 2016 Gallup poll. And while you might think that winning a few bucks from a scratch ticket or a weekend trip to Vegas isn’t a big deal, the government considers every dollar you win from gambling as taxable income.

As a result, it’s important to understand how to report your gambling winnings, what to include and how you can use your losses in your favor. Here are some things you should know about how gambling winnings are taxed.

1. You must report all your winnings

Depending on how much you won during the year, you may receive a Form W-2G listing your gambling winnings. But even if you don’t receive the form, you’re still required to report all your winnings as “other income” on your tax return.

“All cash and non-cash gambling winnings are taxable and should be reported as ‘other income,’ ” says Patrick Leddy, partner at Farmand, Farmand & Farmand LLP. This includes any winnings you received from casinos, lotteries, raffles or horse races. Non-cash winnings, such as prizes like cars or trips, are also considered taxable income and are taxed based on their fair market value.

To make sure you keep track of both your winnings and losses, record the following details every time you gamble:

• The date and type of your gamble or gambling activity
• The name and location of the gambling establishment
• Names of other people who were with you, if applicable
• How much you won or lost
• Related receipts, bank statements and payment slips

2. You can deduct some losses

No one likes to talk about how much money they lost gambling. But when it comes to your tax return, being honest can save you money. That’s because the IRS allows you to deduct gambling losses.

Though you may not be able to deduct all your losses.

“Taxpayers can deduct gambling losses only up to the amount of their gambling winnings,” says Leddy, “and only if they itemize their deductions.”

For example, if your gambling winnings totaled $5,000 in the tax year, but you lost $6,000, you can only deduct $5,000 of those losses. Keep in mind, itemizing your deductions may not afford you the maximum tax benefit. If your total itemized deductions — which can also include charitable donations, home mortgage interest and medical expenses — don’t exceed your standard deduction, itemizing might not be the optimum choice for you.

Can I deduct the cost of a gambling addiction recovery program?

IRS Publication 502 lists alcohol and drug-related addiction-recovery programs as eligible for the medical expense deduction. However, gambling addiction isn’t included. If you need help dealing with a gambling addiction, you can call the Substance Abuse and Mental Health Service Administration’s 24/7, 365-days-a-year hotline at 1-800-662-4357.

3. Even illegal gambling winnings are taxable

According to the American Gaming Association, it’s estimated that Americans spend more than $150 billion per year on illegal U.S. sports betting — and yes, that can include your office March Madness pool.

A May 2018 U.S. Supreme Court ruling opened the door for states to legalize sports betting, but not all have done so. That said, any winnings you receive from betting on sports legally or illegally (or from any illegal activity, for that matter) are still taxable.

Bottom line

How To Write Off Gambling Winnings On Taxes Owed

So how are gambling winnings taxed? Every dollar you win from gambling, whether legally or not, is considered taxable income. As a result, it’s critical that you keep a record of your winnings so that you can report them accurately. You’ll also want to keep track of your losses so that you can use them to qualify for a tax break.

Once you’re ready to file your taxes, Credit Karma Tax® can help show you where to include both your winnings and your losses so that you can maximize your tax refund if you’re owed one.

How To Write Off Gambling Winnings On Taxes Without

Jennifer Samuel, senior tax product specialist for Credit Karma Tax®, has more than a decade of experience in the tax preparation industry, including work as a tax analyst and tax preparation professional. She holds a bachelor’s degree in accounting from Saint Leo University. You can find her on LinkedIn.

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