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Deduct Gambling Losses Against Winnings

how to use gambling losses as a tax deduction

With various forms of casinos and gambling venues widespread across the country, the gambling tax is no longer for only the Las Vegas crowd. Mainstream people need to know about the taxes on winnings and get up to speed on this deduction against your winnings tax. There are two broad categories of 'gambler taxpayers'. The first category is professional gamblers. Most people are not professional gamblers. The second category is "recreational" gamblers - if you are not gambling full time for a living.



Recreational Gamblers Deduct Losses on Schedule A

For "amatuer" or "recreational" gamblers, what you need to do for your gambling taxes is to deduct your losses up to the amount of your gambling winnings. For example if you had $40,000 in gambling wins and $25,000 in gambling losses, you must count all of the $40k as income that will go into the front page of your 1040. Last year it was line 21 on the front page. You just write 'gambling winnings' there on the dotted line and then write the amount in the box.



Your gambling losses go on schedule A. Since there is no spot specifically for gambling losses you have to put it into the miscellaneous deductions. Write 'gambling losses' right there on the dotted line on schedule A and then put the $25k (from our example) for the losses. The key thing to remember is to not put more losses than winnings. If you are like most people and you lost more than you won, then your deduction on schedule A will be the same number as your winnings over on the front page of the 1040. You can only deduct your gambling losses up to the amount of your gambling winnings.Never deduct more losses than you have winnings.



The reason we're going into this level of detail is that so many people do this one wrong. It probably goes back to recordkeeping again for most people. Since they didn't do a good job of recording all their gambling wins and losses all year long, at the end of the year they just decide not to claim their deduction for their losses. The IRS is laughing all the way to the bank with your money. And another thing people do wrong is they only put down the winning amounts of their wins from any W-2Gs. This is actually incorrect. The correct way to do it is to keep a detailed record all year long of all gambling wins (and losses also) regardless of whether or not you received a W-2G for any or all of the wins. Then the correct thing to do is put the total of all wins on the 1040 line 21 and the total of all losses on the miscellaneous deduction schedule A.


For most people, for most years, they lose more than they win. That's how the casinos stay in business after all. So for the big fat part of the bell curve, you know who you are, please take the full deduction you are entitled to. Just make sure you've got your written historical record to prove all wins and losses in case the IRS should come a knockin'.


Professional Gamblers

Let's briefly touch on the professional gamblers. They probably already know this since they are professionals. They get to put their losses on schedule C as a business deduction. And they also get to deduct other ordinary routine expenses of doing business just like any other business man. For example, if traveling to play in poker tournaments you would deduct your airfare, cabs, tolls, tipping the porter at the airport, etc. You would also deduct other business expenses like the purchase of any professional materials like educational books or videos or courses or educational Internet subscriptions regarding your line of work would be tax deductible expenses.

It may be appropriate here, from a tax policy perspective, to point out that the IRS is lovin every minute of an estimated four million taxpayers paying in more than their share of taxes because these taxpayers are not keeping proper gambling records. Now its true, a certain percent of these taxpayers would not be better off itemizing anyway (even with a few thousand dollars of gambling losses to write off). They would still come out better off taking the standard deduction than writing off their gambling losses. If this is you then that makes sense. But it is not the case for a large segment of the population. The standard deduction is only $5,800.


Okay, to change the subject, as you all know the IRS gets a kick out of changing a bunch of tax rules every year. So you need to go ahead and double check when the new forms and pubs come out, but in the past, this deduction has never been subject to any kind of greater than 2% of your income rule or anything like that. In the past, you've always been able to deduct all gambling losses up to the amount of your gambling wins for that year. So all you gamblers quit giving away the farm on this deduction. Report all your wins (not just W-2G wins) and deduct all losses (up to the amount of your wins).

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