6 Tips on Gambling and Income Taxes: Don't Play the IRS for a Sucker
In other words, gambling losses aren’t completely tax-deductible on their own, but you can write off losses up to the amount of your winnings. Those winnings are taxed at ordinary income rates reaching as high as 39.6% on the federal level.
But you can’t just deduct the amounts that you say you lost on your return. The IRS is a stickler for requiring adequate records to substantiate losses and this is a frequent audit item. Practically speaking, you should advise clients – especially those who are heavy gamblers – to keep a log of their activities stating the date of the activity, the location, names of any people who were there with you, the amounts wagered, the type of gambling and your winnings and losses. Supplement this log with receipts, tickets, statements and forms and the like.
The specific proof required by the IRS may vary according to the type of gambling activity. For instance:
In addition, the IRS offers these tips:
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Of course, it’s not easy to establish yourself as a professional gambler. Be prepared for an argument from the IRS. And the agency usually prevails in court, so be wary of the odds against you.
But you can’t just deduct the amounts that you say you lost on your return. The IRS is a stickler for requiring adequate records to substantiate losses and this is a frequent audit item. Practically speaking, you should advise clients – especially those who are heavy gamblers – to keep a log of their activities stating the date of the activity, the location, names of any people who were there with you, the amounts wagered, the type of gambling and your winnings and losses. Supplement this log with receipts, tickets, statements and forms and the like.
The specific proof required by the IRS may vary according to the type of gambling activity. For instance:
- 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.
In addition, the IRS offers these tips:
- As noted above, gambling income can include a variety of types, as well as the fair market value of prizes a person may win, such as cars or trips.
- The taxpayer may, or may not, receive a Form W2-G.
- With or without that form, winnings should be reported as income for tax purposes.
- Winnings should be entered on the "Other Income" line of a federal tax return or tax software.
- Gambling losses can be deducted against the total amount of winnings, but not over.
- And, of course, keep accurate records.
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Leave It to the Pros
There’s another way around the gambling loss restrictions for a select few taxpayers. If gambling legitimately is your livelihood, you may report winnings and losses from such activities on Schedule C, but you can’t claim an overall loss. In addition, the value of complimentary rooms, vacations, and other gifts from casinos is treated as taxable income, but can be offset by losses from your gambling activities.Of course, it’s not easy to establish yourself as a professional gambler. Be prepared for an argument from the IRS. And the agency usually prevails in court, so be wary of the odds against you.