Here’s another tax question we’ve received recently, with the caveat that we are not accountants and we encourage players to consult with an accountant with gambling law familiarity:
Can you write your winnings and losses off on your federal taxes, mostly losses of course?Paul F.
There is a mechanism for being able to claim gambling losses on your taxes. However, not all tax filers are eligible for this. Here are things that you should know.
You Must Be Itemizing Deductions
Many tax filers in the United States rely on the standard deduction – it’s a deduction that’s granted automatically for a certain amount, which changes with inflation each year, and also was increased substantially a few years ago with tax laws changes passed by Congress.
To be eligible to itemize, you would effectively need to submit more deductions than the amount of the standard deduction. If your various deductions get you there, you’re able to incorporate gambling losses into your itemized deductions. Otherwise it’s considered covered by that standard deduction.
If you itemize, losses can be deducted up to the total amount of winnings reported – if you won $10k and lost $20k, you can only deduct $10k since that’s what you won. If you won $10k and lost $5k, you can deduct $5k since you have enough winnings to cover all of your losses.
You Must Be Reporting ALL Wins and Losses
Many players get tripped up by the fact that you have to report all your winnings and all your losses to do this, not just what’s been reported to the IRS on jackpot forms. If you are not doing this, you are leaving yourself open to trouble in the case of an audit.
What does this mean? Each time you win on a session, you report that winnings as income. Each time you lose on a session, you can deduct those losses against your winnings as income.
The effect of this is it drives your overall income up, but then you’re able to claim back losses up to the winnings in that income.
You Must Keep Diligent Records
We’ve seen plenty of players advise others to just grab win/loss records off the casino websites. But the IRS advises this isn’t good enough for proof, and advises gambling diaries, receipts from ATMs, tickets and other such record-keeping proof to truly prove your gambling activity. Depending on the type of game you’re playing, they have recommendations for what you should be recording.
Why are win/loss records not enough? Because if you forget to put in your card, the card reader doesn’t work, you leave your card behind by accident and someone else then gambles with it in the machine… it’s far from a foolproof system.
If you don’t do this, and get audited, it’s another issue you’ll have to contend with, and they may not accept the deductions if you can’t adequately prove your play.
So, gambling losses can be written off if you qualify, but there’s additional steps to take to ensure you’ll be fine if the IRS decides to audit you. Hopefully this helps all of those wondering what is possible in terms of gambling deductions.
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