Can You Claim Gambling Losses on Your Taxes?
Gambling losses are indeed tax deductible, but only to the extent of your winnings. Find out more about reporting gambling losses on your tax return.
Key Takeaways
- You can deduct your gambling losses, but only to offset the income from your gambling winnings. You can't deduct your losses without reporting any winnings.
- The amount of gambling losses you can deduct can never exceed the winnings you report as income.
- To report your gambling losses, you must itemize your income tax deductions on Schedule A. If you claim the Standard Deduction, then you can't reduce your tax by your gambling losses.
- The IRS doesn't permit you to subtract your losses from your winnings and report the difference on your tax return. You must report your winnings and losses separately.
Claiming gambling losses
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.
Keeping track of your winnings and losses
The IRS requires you to keep a log of your winnings and losses as a prerequisite to deducting losses from your winnings. Your winnings include each win during the year.
You typically cannot offset your winnings from one day with your losses from another day in order to report your net winnings or losses. Your winnings and losses typically need to be separated and reported individually. The IRS does allow you to net your wins and losses on the same day for the same type of wagering if you meet certain requirements. This means that if you win at the slots one day and lose the next day, you have to report the winnings on your tax return as income and then deduct the losses separately as an itemized deduction.
Typical sources of winnings and losses can include:
- lotteries
- raffles
- horse and dog races
- casino games
- poker games
- sports betting
Your records need to include the:
- date and type of gambling you engage in
- name and address of the places where you gamble
- people you gambled with
- amount you win and lose
Other documentation to prove your losses can include:
- Form W-2G
- Form 5754
- wagering tickets
- canceled checks or credit records
- receipts from the gambling facility
TurboTax Tip:
In addition to deducting the actual cost of wagers, you can also deduct other expenses connected to your gambling activity, including travel to and from a casino.
Limitations on loss deductions
The amount of gambling losses you can deduct can never exceed the winnings you report as income. For example, if you have $5,000 in winnings but $8,000 in losses, your deduction is limited to $5,000. You could not write off the remaining $3,000, or carry it forward to future years.
Reporting gambling losses
To report your gambling losses, you must itemize your income tax deductions on Schedule A. You would typically itemize deductions if your gambling losses plus all other itemized expenses are greater than the Standard Deduction for your filing status. If you claim the Standard Deduction, you:
- are still obligated to report and pay tax on all winnings you earn during the year
- will not be able to deduct any of your losses
Only gambling losses
You can include in your gambling losses the actual cost of wagers plus other expenses connected to your gambling activity, including travel to and from a casino. Keep in mind that the IRS does not permit you to simply subtract your losses from your winnings and report the difference on your tax return. And if you have a particularly unlucky year, you cannot just deduct your losses without reporting any winnings. If the IRS allowed this, then it's essentially subsidizing taxpayer gambling.
The bottom line is that losing money at a casino or the race track does not by itself reduce your tax bill. You must first report all your winnings before a loss deduction is available as an itemized deduction. Therefore, at best, deducting your losses allows you to avoid paying tax on your winnings, but nothing more.
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