Can Gambling Losses Be Deducted From Taxes?
The IRS treats gambling winnings as taxable income, but did you know that you are also allowed to deduct gambling winnings? While losing money at a casino or racetrack does not in itself remove your tax burden, it can reduce taxes due on your other winnings and ultimately save you money.
How to know if gambling losses can be deducted
Gambling loss deductions save you money by reducing taxable income. But there is one trick to this: you cannot claim losses in gambling in excess of your winnings, since losses are inextricably linked to your winnings for tax purposes. If you have no winnings, you cannot deduct your losses.
As an example, suppose you gambled twice in a given year, winning $ 6,000 in one case and $ 8,000 in another. In this case, you can only deduct $ 6,000 from that $ 8,000. The remaining $ 2,000 in losses cannot be carried forward or written off. Conversely, if you win more than you lose, you will have to pay taxes on the difference between your winnings and losses as “other income,” but at least these taxes will be reduced.
(If you are a full-time professional gambler, the requirements will be different : you will be reporting your income as if it were from a business, as income from self-employment.)
How to claim a loss in gambling
Deductible gambling losses can be caused by online casinos, poker games, sports betting, lotteries, prize draws, horse racing and dog racing, and even your office fantasy sports pool. To report any of these gambling losses, you will need to include your deductions. This makes sense if the sum of all your itemized deductions exceeds the standard deduction ( $ 12,400 for taxpayers who are single or filing separately from their spouse). If you claim a standard deduction, you will not be able to reduce taxes on winnings owed by deducting gambling losses.
Keep in mind that you must be able to substantiate any losses you claim, which means that you will need to keep a record of your gambling.
Track your wins and losses
You can’t just tell the IRS, “I lost a lot of money by gambling.” They require you to provide a record of your winnings and losses to support your claim. Therefore, you should keep track of:
- date and time of your gaming session
- type of gambling
- name and location of the gambling establishment
- people you played with
- how much did you bet, win and lose
You should also keep credit card statements, payout receipts, receipts, tickets, bank withdrawals, and actual winnings reports. Other documentation may include:
- Form W-2G (usually issued or sent to you by the casino after a large payout)
- Form 5754 (a form for those in the group that makes money gambling; you may see one if you and your colleagues are cashing in a winning lottery ticket)
Do you or someone you know need help solving a problem with gambling? Call the National Gambling Hotline (1-800-522-4700).