Gambling and taxes: How are income and losses handled?
Gambling always has an outcome. Sometimes you win, sometimes you lose.
But either way, there are tax implications.
How do gambling income and gambling losses affect taxes? In this post, we will discuss that question as it applies to casual (not professional) gamblers.
Reporting income, deducing losses
If you suffer gambling losses, you can deduct those losses on Schedule A, for your itemized deductions.
Keep in mind, however, that the deduction for gambling losses is limited to the amount of your winnings. Gambling winnings have to be reported as income, with the deduction for losses claimed separately.
What does that mean exactly regarding the deductibility of losses? For example, say you won $1,200 at a casino but lost $1,500. In that case, you could deduct $1,200 – but only if you had enough other deductions in order to itemize.
If an audit arises, the IRS can be strict about the amount of your gambling income and making you prove all of your gambling losses. If you win money, you may receive a Form W-2G from the payer.
If your winnings were a jackpot at a Las Vegas casino, you can be sure that the casino will be reporting those winnings to the IRS. So it is important to report winnings accurately on your tax return. And if are deducting gambling losses, you have to be prepared to verify them in case of an audit.
This means you should try to keep good records of your gambling. This could include receipts and a diary or journal of your activity. The reason this is important is that gambling tends to be a pretty highly audited area of tax law.
Tax debt and gambling issues
Gambling losses can also affect your ability to address any problems you have with tax debt. If you are in that position, it makes sense to get help from a skilled attorney who can guide you in seeking to resolve the issues with the IRS.