Gambling losses are indeed tax deductible, but only to the extent of your winnings and requires you to report all the money you win as taxable income on your return. The deduction is only available if you itemize your deductions. If you claim the standard deduction, then you can't reduce your tax by your gambling losses. 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.

If you’re a casual gambler, report your winnings on the “Other Income” line of your Form 1040, U. 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. Gambling losses can only be deducted up to the amount of the gambling winnings. Gambling winnings are reported on Form 1040 Line 21 as Miscellaneous Income. Gambling Losses are reported on Form 1040 Schedule A as a Miscellaneous itemized deduction. Gambling losses are not a one-for-one reduction in winnings. The IRS requires U.S. Citizens to report all gaming income on their tax return, even if you did not receive a W2-G. You can report gambling losses on Schedule A as a way to reduce your tax.

Can You Net Gambling Wins With Gambling Losses on Your Tax Return?

Taxpayers who gamble casually (meaning they do not qualify as being professional gamblers under the tax code) can net wins and losses within a single session of gambling, but not from different days. 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.

Where To Report Gambling Losses On Tax Return 2017

Because casinos report larger winnings to the IRS on Form W-2G, failing to use this method may cause the IRS to see a discrepancy and trigger an audit. The general IRS advice on this topic can be found on the IRS’s website (click here).

The netting ofwins and losses is addressed by the Tax Court in Shollenberger v.Commissioner, T.C. Memo. 2009-306 (2009), where the court followed IRSguidance in stating:

Where To Report Gambling Losses On Tax Return 2018

A key question in interpreting §165(d) is the significance of the term “transactions.” The statute refers to gains and losses in terms of wagering transactions. Some would contend that transaction means every single play in a game of chance or every wager made. Under that reading, a taxpayer would have to calculate the gain or loss on every transaction separately and treat every play or wager as a taxable event. The gambler would also have to trace and recompute the basis through all transactions to calculate the result of each play or wager. Courts considering that reading have found it unduly burdensome and unreasonable. See Green v. Commissioner, 66 T.C. 538 (1976); Szkirscak [sic] v. Commissioner, T.C. Memo. 1980-129. Moreover, the statute uses the plural term “transactions” implying that gain or loss may be calculated over a series of separate plays or wagers.

The better view is that a casual gambler, such as the taxpayer who plays the slot machines, recognizes a wagering gain or loss at the time she redeems her tokens. We think that the fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate the amount above or below basis (the wager) realized. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). For example, a casual gambler who enters a casino with $100 and redeems his or her tokens for $300 after playing the slot machines has a wagering gain of $200 ($300-$100). This is true even though the taxpayer may have had $1,000 in winning spins and $700 in losing spins during the course of play. Likewise, a casual gambler who enters a casino with $100 and loses the entire amount after playing the slot machines has a wagering loss of $100, even though the casual gambler may have had winning spins of $1,000 and losing spins of $1,100 during the course of play. [Fn. ref. omitted.]

Thus, the net win from the session as a whole (e.g., when the taxpayer actually cashes out for the day) would be reported under “other income” while the net loss from another day’s session would belong on Schedule A.

Fortunately, those who use casinos’ player cards often can get a statement from the casino breaking down daily wins and daily losses. Some casinos, however, decline to provide this level of detail to their own customers despite having such records. Instead, those casinos will provide only an annual net win or loss statement. As this may cause problems in an IRS audit if the auditor is a stickler for technicalities, a taxpayer may prefer to patronize casinos which provide the additional detail as a higher-level of customer service.

The author of this post is Daniel W. Layton, a former IRS trial attorney and ex-federal prosecutor in the Tax Division of the Los Angeles U.S. Attorney’s Office. He is a tax attorney representing private clients in Newport Beach and Fullerton, Orange County, California.

Posted on 12/11/2019 by Daniel Layton.

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.

• 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.

Where To Report Gambling Losses On Tax Return Due

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

Where To Report Gambling Losses On Tax Return Irs

• 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

Where To Report Gambling Losses On Tax Return

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