Deducting Gambling Losses On Your Taxes

In previous posts, I have been talking about deductions that are subject to the 2% floor.  Now, I will be discussing an itemized deduction that is not subject to this limit.  This would be reported on line 28 of Schedule A, which is labeled “Other Miscellaneous Deductions”.

Do you spend a little time gambling?  Go see the ponies run and place a little something to make it fun?  Do you buy lottery tickets?  Did you play blackjack on that trip to Las Vegas?   Did you win anything?  If so, you will need to report any winnings as income on your 1040.  You will get a Form W-2G, which will show you the winnings you need to include on line 21 as “Other Income”.  You will get a Form W-2G if one of the following occurs:

  1. The winnings are $1,200 or more from playing bingo or a slot machine,
  2. The winnings, reduced by the amount of the wager, are from playing keno and are $1,500 or more,
  3. The winnings, reduced by the amount of the wager, are from playing in a poker tournament and are $5,000 or more,
  4. The winnings from other games, when reduced by the wager (if you choose to reduce the winnings by the amount of the wager), are
    1. $600 or more, and
    2. At least 300 times the amount of the wager, or
    3. The winnings are subject to federal income tax withholding.

Now that you have recorded your winnings as other income, you can take an itemized deduction for your losses.  Now, a little bit of bad news here:  You can only deduct losses to the extent that you have winnings.  For instance, if you won $500 during the year, but lost $1,000, you can only deduct $500 of the losses.  A little unfair if you had a bad year, but hopefully you have better luck in a following year.

It is very important that you keep good records of your wins and losses.  This will help in providing support of the deduction in case of an audit.  You need to be able to provide receipts, tickets, statements or other records to substantiate the amount of your wins and losses.

Other types of deductions allow for you to carry forward a loss to a future year.  However, you cannot do this with a net gambling loss.

What experiences have you had with reporting gambling losses on your tax return?  Do you have any other cautionary tales about gambling and taxes?  I’d love to hear about it.  Also, if you have any questions, shoot them to me at chrispedencpa@yahoo.com, and I would be happy to answer them.  If you need help with other tax questions, or with preparing a return, drop me a line, and we can discuss your situation.

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