Can You Write Off Casino Losses On Your Taxes
- Can You Write Off Casino Losses On Your Taxes Refund
- Can You Write Off Casino Losses On Your Taxes Owed
- Can You Write Off Casino Losses On Your Taxes Returns
- Can You Write Off Casino Losses On Your Taxes Due
- Can You Claim Gambling Losses On Your Taxes Australia
- Can You Claim Casino Losses On Your Taxes
You can't deduct more in gambling losses than you have in gambling winnings for the year. For example, suppose you reported $13,000 in gambling winnings on Line 21 of Form 1040. The short answer is. You can absolutely deduct those gambling losses. However, you can only do so based off of how much you’ve won in cold, hard gambling cash. This means in order to write off your losses, you will have to accurately report the amount of money you made from gambling in a given year. While the IRS does not have a gambling losses tax, it does allow for you to deduct gambling losses on your tax return in the form of a miscellaneous deduction. To deduct your losses from gambling, you will need to: Claim your gambling losses on Form 1040, Schedule A as Other Miscellaneous Deduction (line 28) that is not subject to the 2% limit.
© Photo: Sasha Cornish / EyeEm (Getty Images)
The IRS views winnings from gambling as taxable income, but did you know that you’re allowed to deduct gambling losses, too? While losing money at a casino or the racetrack does not by itself relieve your tax burden, it can reduce taxes owed for your other winnings, ultimately saving you money.
How to know if you can deduct your gambling losses
Gambling loss deductions save you money by reducing your taxable income. But there’s a trick to this—you can’t claim gambling losses that exceed your winnings, as losses are inextricably linked to your winnings for tax purposes. If you have no winnings to claim, you can’t deduct your losses.
As an example, let’s say that in a given year you went gambling twice, winning $6,000 in one instance, but losing $8,000 in another. In this case, you can only deduct $6,000 from that $8,000 loss. The remaining $2,000 in losses can’t be carried forward or written off. Conversely, if you won more than you lost, you’d owe taxes on the difference between your winnings and losses as “other income”—but at least those taxes would be reduced.
(If you’re a full-time, professional gambler the requirements are different: you will report your earnings like they have resulted from a business, as self-employed income).
Video: How to improve your credit score without a credit card (USA TODAY)
How to claim gambling losses
Deductible gambling losses can result from online casinos, poker games, sports betting, lotteries, prize draws, horse and dog racing, and even your office fantasy sports pool. To report any of these gambling losses, you’ll be required to itemize your deductions. This makes sense if the total of all your itemized deductions exceeds the standard deduction ($12,400 for taxpayers who are single or are filing separately from their spouse). If you claim the standard deduction, you don’t get the opportunity to reduce taxes for winnings owed by deducting gambling losses.
Keep in mind that you must be able to substantiate any losses you’re claiming, which means you’ll need to keep records of your gambling.
Track your winnings and losses
You can’t just say “I lost a bunch of money gambling” to the IRS. They require you to provide records of your winnings and losses to back your claim. Therefore, you should keep track of:
- the date and time of your gambling session
- the type of gambling
- the name and location of the gambling venue
- the people you gambled with
- how much you bet, won and lost
You should also keep credit cards statements, payout slips, receipts, tickets, bank withdrawal records, and statements of actual winnings. Other documentation can include:
- Form W-2G (typically given or mailed to you by casinos after a big payout)
- Form 5754 (a form for when you’re part of a group that earns money through gambling; you might see one of these if you and your co-workers are cashing in a winning lottery ticket)
Do you or someone you know need help with a gambling problem? Call the National Problem Gambling Helpline Network (1-800-522-4700).
Can you write off real money gambling losses on your taxes? The short answer is yes, but as is the case with most things that are taxes and IRS-related, it’s a lot more complicated than you might think.
Gambling on the track or the tables is one thing, but one house you never want to cross is the IRS.
When it comes to gaming income and taxes, there’s a lot of misinformation out there. You’ll hear all kinds of funny stuff from the random characters you meet at your gaming location of choice, but you should probably treat that the same way you treat “tips” on which slot machine is loosest tonight—with a healthy helping of skepticism.
The truth is that gaming income is very much taxable under certain conditions and up to certain amounts. And while you can definitely deduct your losses, you want to make triple sure you’re doing it the right way.
I would also like to note that I am not a tax professional or tax attorney and am not giving you professional or legal advice here. I’m presenting you with some general notions of how it all works, but you should always consult a tax professional or tax attorney before filing your taxes.
Before we jump into the article, we want to make an important distinction: The rules are different if you’re a professional gambler.
If You’re a Professional Gambler, Read This First
Most of what you’re going to read in this article concerns gambling as a hobby. The IRS basically considers a source of income a hobby if you’re mostly doing it for fun. It’s also considered a hobby if you’re not doing it regularly or don’t depend on that income to pay the bills.
There’s a great list you can read about how the IRS distinguishes between a business and a hobby here.
That being said, if your main source of income is gambling, you’re essentially getting taxed the same way you would if you were running your own business.
- It means you have to pay the self-employment tax.
- It affects the way you calculate your winnings and losses by session (which has a specific definition), which means you have to track how much you walk away with (or lose) every time you sit down and play.
- If you’re doing itemized deductions, you may be able to deduct a portion of your losses, and you may be able to deduct other expenses.
However, the best advice we can give is to work with a tax professional. Depending on your losses and expenses, you may just want to take the standard deduction.
You Can Write off Gambling Losses but Here’s the Catch
The catch is simple! You can’t write off more losses than winnings.
What does that mean? Well, it means that if you’re the world’s biggest loser and won nothing all year but lost tens of thousands of dollars, you can’t write any of it off.
For Example:If you win $5,000 and lose $20,000 for the year, you can only write off $5,000.
A lot of this depends on sessions, and the IRS recommends you keep a gaming diary or log to keep track of how much you won or lost during each session. A “session” has a special definition, but it basically means any period of continuous play without cashing out.
So, if you sit at a blackjack table for two hours, and you’re down $600 at one point, but you make a comeback and cash out up $100, even though you were down during the session, you can likely count that as $100 in winnings for that single session.
One rule though is that a session can’t last more than a day.
But all of this is up for interpretation, and unless your winnings are out of control (or there’s something fishy about your taxes), it’s unlikely that the IRS is going to swoop down to the casino and start grilling the pit boss.
That being said, check with a tax professional if the amounts you’re winning or losing are getting high. If you are winning below certain amounts, the casino doesn’t have to report the income, but you still do.
If You Win Above a Certain Amount, Taxes Will Be Automatically Withheld
Even if you’re really not making much money off gambling for the year, you still have to pay taxes on the income. That’s right, even if you only make $100 this year by gambling, you have to report it.
Can You Write Off Casino Losses On Your Taxes Refund
That being said, once you win above a certain range, the casino (or horse track or payer) is going to withhold the taxes you owe the government.
There’s a range, but it looks something like this: If you win more than $600 or 300 times whatever you wagered, the taxes will be withheld. There are special rules for some games though.
For Example:If poker is your thing, taxes won’t be withheld on winnings from a poker tournament (which has a special definition) unless you win more than $5,000.
For bingo and slot machines, the limit is $1,200. If you’re playing keno, it’s $1,500. But even if you’re not getting above these thresholds and are not automatically having your taxes withheld by the payer, your winnings are subject to a federal income-tax withholding requirement.
You have to pay 25% in taxes one way or another. All kinds of prizes can be subject to this tax. If Oprah gives you a free car at one of her shows, you’re going to owe taxes on that prize.
And once you get into really big amounts, the tax rules change, so as always, consult a tax professional as soon as possible if you win big.
Adjusted Gross Income
If gambling is not your full-time job, but you’re making (and/or losing) a lot of money each year, it can have a big impact on your adjusted gross income. This can increase the amount of taxes you pay each year, even if you ended up with a net loss for the year.
Your adjusted gross income is increased by any gambling wins, but gambling losses aren’t going to decrease your adjusted gross income, unless you’re a professional gambler (which most people aren’t).
So, let’s say that you had an equal amount of wins and losses for the year. Does that mean you can walk away scot-free? Definitely not. Even though your net income was low, the gross is going to be much higher.
Why does this matter? You might accidentally push yourself up into a higher tax bracket. You might be unable to get the same deductions in other areas of your life than you were once getting. You might even have to pay more in Medicare tax.
Can You Write Off Casino Losses On Your Taxes Owed
The really important takeaway here is simple. Even if you lost a whole lot of money gambling this year, you still need to report your wins and losses.
If you don’t, you might find yourself in a world of tax trouble. Reach out to a tax professional, especially if you have some large winnings and losses, and see if they can save you from getting a crazy-high tax bill.
Keep Track of Wins and Losses
Remember that gambling diary or log that I mentioned earlier? If you’re making enough income through gambling to owe tax on it, you need one of these. And it needs to be pretty specific about what you did and what happened during each session. Remember, a session counts as one continuous round of play without cashing out, up to one day.
What kind of information might you keep in such a diary? You’ll want to have how much you won or lost of course (net should be sufficient), but you’ll also need date/time/location information, what casino game you were playing, and anything additional that can help you pinpoint each session (so you might have a machine number on there, or you might need to list the name of the people who were with you, or maybe even the pit boss).
You’ll also need to keep any other proof that this money existed, like banking records (deposits and withdrawals), and a document called “Form W-2G.”
Can You Write Off Casino Losses On Your Taxes Returns
Keep Your Eye out for Form W-2G
The house always wins, but in this case, the house is the IRS. The owners and operators of casinos and other gaming businesses have to report their income (and payments) as much as you do, so when you win over a certain amount, they may issue you Form W-2G.
Form W-2G is generally issued when you hit those minimum amounts mentioned above, but the government isn’t going to give you a pass if you didn’t get one. It’s up to you to track that money and be aware of how much you won.
Usually, you’ll know though. Form W-2G is issued because the casinos and other entities must withhold a percentage of your gambling income. If you don’t receive one after a large win, make sure you ask for it so you’ll have proof they withheld your taxes (and you don’t end up liable for them).
Conclusion
Remember, when it comes to gambling losses and whether or not you can write them off (or whether you owe a lot more money than you thought), it’s critical that you work with a tax professional. The last thing you need is to misinterpret the rules and end up with a huge tax bill on your hands.
Can You Write Off Casino Losses On Your Taxes Due
The IRS doesn’t take gambling winnings lightly. Keep careful track of how much you’re making, keep a diary, and contact a tax attorney or professional tax preparer before you file your taxes, especially if you made a lot of money gambling this year.
Can You Claim Gambling Losses On Your Taxes Australia
Are you a tax professional? Is there anything I missed here? Let me know in the comments!