How to Claim Deduction for Gambling Losses and Pay Taxes on Winnings?
December 21, 2009Love Your Health Money Family & Relationship
In gambling ( such as lotteries, raffles, horse racing and casinos games), there are only two things that are possible – win and lose money. Most of the gamblers are pretty disorganized by nature, for whatever reason; and thus they are prone to losing and not keeping track of their gambling records. It is important to because at the end of the year you have to file taxes, especially if you get lucky and win tons of money. You have to claim your winning money as part of your income since gambling winning or earnings are taxable. However, if you lose money you are responsible to claim the losses that way you can earn some deductions. This is not much important for IRS, what is important to them is that you document all the money you won by gambling in your tax return accurately; otherwise you may be subject to be audited.
Lets first discuss How to claim tax deduction for gambling losses? It is pretty simple, you add all the accurate amount of money in gamble and declare that lost in Schedule A section under “Other Miscellaneous Deductions” on line 27 of 1040 tax return form and fill it out thoroughly. The only complicated part is that you have to itemize that deduction when calculating. Most of the gamblers lose more money than they win. However, if they do win more money; they can’t claim or deduct more than winning amount. It has to be either equal or less than the sum prize. Therefore, gambling losses are not subject to 2 percent limit, where only the extent of gambling winnings that exceed 2 percent of your adjusted gross income are deductible. And always be ready to be able to provide the proof of losses, which could include but not limited to log detailing the date of wagers, the location, amount bet, and the type of gaming, receipts; tickets, statements, invoices, check copies, etc. And you can’t include the expenses associated with gambling such as transportation and communication costs. Although IRS consider gamble winnings as income, the expenses are considered personal outlays unless you are a professional gamblers. The professional gamblers, like those that play in tournament to earn a living, can call gambling as a business in their taxes. So when they have out-of-pocket expenses we discussed above, they can add them under the Schedule C. This pretty much cover everything to know about how reduce your taxes with gambling losses. They call them earnings instead of winnings.
You must enter gambling winnings to be able to deduct gambling losses. So now lets move on to answer the question How Do I Pay Taxes on Gambling Winnings? I am glad you are willing to pay taxes, especially from gambles which is taxable. A lot of people assume IRS can’t catch them unless they win like a million dollar lottery prize. IRS is automatically notified by the payer whenever a gambler wins $600 or more (and that amount is 300 times your bet) at a horse track, win $1,200 at a slot machine or bingo game, or take $1,500-plus in keno winnings and $5000 at the poker tournament. This is why they get your Social Security number because it is an extra income. If you win a non-cash prize, such as a car or a trip, you will be responsible for the taxes on the fair market value of the item or items (if the value exceeds $5,000). In return for giving that information, the payer will later send you Form w-2g. It is similar to w-2 form, except w2g form will include what you won for that short time along with taxes you paid and withheld. You will find a space to fill these information in Line 21 of 1040 form. However, regardless of the amount of winnings, W2-Gs are not required for earnings from table games such as blackjack, craps, pai gow, baccarat and roulette. When you are ready to send your federal tax return, attach that w-2g form with it. When reporting the winnings, you cannot use for 1040EZ since you have to itemize the earnings and losses from gambles.
The best idea is to keep record of all the gambling transaction so that you can file pay taxes on your taxable gambling income, claim deduction on the losses and not get audited by IRS officers.
Topics: Games, Money, Tax | 17 Comments »
December 23rd, 2009 at 4:52 pm
Lets say I have qualify under the category to claim some tax deductions because I lost bunch of money playing lotteries and casino games but I don’t have anything to show that I did indeed lost in gambling? Also do you really have to attach the proofs with your tax return because I was thinking for filing online and just estimating the losses. Thanks in advance. Jim.
December 28th, 2009 at 6:08 pm
Ok, I hope I got this right that the money you won on bets, gambling and lotteries are all considered unearned income? Where do I put these number in my tax form. Funny but I played quite a lot of games with my money in year 2009 when the economy was falling down and many people were losing money. Good thing is that I didn’t lose instead won enough to cover the bills of my daily lives.
January 4th, 2010 at 11:06 pm
My case is hopefully very simple because I don’t have any winnings. Actually I didn’t gamble much only played poker a couple of times and lost close to $2,500 at the end of the December last year. And that’s the only time I ever spend money on such things. What I am wondering is that if there is any special formula or something to help me to estimate the deduction. Thanks.
January 5th, 2010 at 6:40 pm
I won $32,800 this year in the lottery. when I itemize my losses I was wondering what would be a safe amount to claim without throwing up flags to the IRS for audit? They already took out $10,000 when I claimed my prize. I did save all of my loosing receipts from playing lottery, scratch offs and raffles. I’m just deathly afraid of being audited in years down the road. thanks
January 6th, 2010 at 7:04 pm
To # 4 commentator, I would definitely add as much losses as I could into it. The good thing is you have all the receipts to prove it. If I were you, I would even opt for looking at the ones I don’t have the proofs to show because you already paid well over 30% of you winnings.
January 7th, 2010 at 7:30 am
To Mary from comment #4, if i try to get back the $10,000 they took do you think that I might still be “safe” from audit? or should $8,000 be better, I don’t want to be to greedy. thanks Al
January 17th, 2010 at 7:57 am
I’m told by many, my losses are more than my winnings so I don’t have to pay taxes on my winnings. Last year,even though I lost more than I won, my tax man figured I owed the IRS $1,300.00 in taxes. He said if I wouldn’t have gambled, I would have gotten approx. $300 back from Federal but since I gambled, I owed them $1,300.00. How does that happen?
Thank you, in advance, for your response.
January 17th, 2010 at 8:49 pm
Hey Lottie, here is how I can explain this for you – you can only count as much in losses as you won. What this means is that You Have To Pay Taxes Even If You Lose More Money on Gamblings that Won. I don’t know the exact percentage number by IRS uses to calculate that taxes for this fiscal year nor do I know how much you won and lost. But the thing is the tax rates for earning/income/winnings are far more than DEDUCTIBLE rates on losses and other expenses.
January 22nd, 2010 at 9:40 pm
I play slots. My loss is always far greater than my winnings. I’m assuming it’s because my casino card shows every dollar in and out hours and hours of it. There is no way that my loss was entirely out of pocket. When putting this information on my taxes, it looks like I’ve lost a lot of money. Most people don’t understand the way it works, I don’t fully understand it. Do I have to show my entire loss on my taxes?
I hope you can help.
thank you!
January 31st, 2010 at 7:30 am
I have two W2G forms which I am clear how and where to report this on the 1040 along with my losses on the 1040. However, my question is this – I won a trip. Where on the 1040 do I claim this amount and the losses as well. I did not receive a W2G because I did not receive cash.
Thank you!!
January 31st, 2010 at 10:28 pm
slotsalot, your case is just very simple. You won a trip, but I would imagine they either told you how much it is worth or you could kinda estimate the amount. That fair market amount is what you put as your winning in 1040 form in Line 21. As far as losses are concerned, use the Schedule A form that comes with 1040.
February 3rd, 2010 at 7:27 pm
Why hasn’t anyone responded to my question?
Hi there, you have to definitely list all the losses to get the deduction. And you do qualify for one since your lost amount was greater than the winnings. I would recommend efile or at least a tax software and see how your tax turns out be – with these you will see how much your tax deduction, refund or return will be before submitting the completed tax return to the IRS.
February 18th, 2010 at 2:51 pm
Hi All,
Thank you all very much for your responses. My tax man will be here on Sunday (I think this Sunday) so I will ask him exactly how the winnings and loses are calculated. Why does the state deduct the loses before figuring the gross income and the Federal figures the winnings as “gross” income and then subtracts it at the end as loses. Very confusing to me! Oh, in year 2008 I won forty-six-thousand and lost sixty-three-thousand. This year, 2009, I won fifty-six-thousand and lost fifty-eight-thousand. I so loose more than I win and still pay taxes on my winnings!! I’ll let you all know what my tax man has to say!
February 25th, 2010 at 4:54 pm
I won a tournament of $9000 and won a jackpot of $9000 last year. I have kept most of my tournament receipts. I deposited $7000 in the casino bank account and I kept track of all the money i withdraw from the account. Can the receipt of withdraw from the account be an evidence of loss? Because I used those money to play again and lost. Do I need to list every single transcation on a certain form for the IRS?
May 2nd, 2010 at 6:45 am
I have lost 10,000 since january 2010 to horse. I have don’t won. I have all of my losing tickets. How can I file yhese loses on my federal income taxes and how much will be decucted?
June 6th, 2010 at 9:01 am
Your questions about winnings and losses can’t be answered without knowing what your other income is, because this is added to your figures. Also any income you received from interest, etc. All income has to be added before you can figure what you have to pay, or what you will get as a refund. The main thing to know about gambling is that you have to claim all winnings as income, and you can only claim losses on your Schedule A..itemized deductions. You cannot claim more losses than winnings, but you can claim the same amount losses as winnings if you have the documentation to prove your figures, such as receipts, and win/loss statements from the casino.
August 15th, 2010 at 6:24 pm
Last year I won just over 3.1 million playing video poker. My net loss for the year was 14,000. My wages for the year were 100,000. My gross income 3.2 million but I did end up losing money for the year. I still had to pay several thousand dollars in income taxes even though I didn’t win anything. Why is this? Did my accountant miss something? Any help would be greatly appreciated.