You can deduct losses you incurred from gambling on your tax return, but only up to the amount of your winnings.
Since gambling loss deductions are dependent on your winnings, you’ll need to report all the money you win from gambling to the IRS. This means you’ll have to include it in your taxable income when you file your tax return.
You must itemize your deductions to claim losses from gambling. Taxpayers who opt for the standard deduction are not able to claim their gambling losses.
Maintaining Records
You’ll need to keep accurate records of your gambling wins and losses if you want to claim your losses on your tax returns. The IRS requires you to keep track of the exchange of money from the following activities:
- Lotteries
- Raffles
- Races (horse/dog)
- Casino games
- Poker Games
- Sports bets
The records you keep should include:
- The date and type of gambling activity
- The name and location of the gambling establishment
- The people you gambled with
- The amounts won and lost
Your records should retain proof of your losses, should you be asked to provide it. Proof can include documentations such as:
- Form W-2G
- Form 5754
- Wagering tickets
- Canceled checks
- Receipts from the gambling location
Deduction limitations
You can’t deduct any gambling losses that exceed the amount you win and report as income. That means if you won $5,000 by gambling, but also lost $8,000 during the year, you’re only eligible to deduct $5,000. The remainder of the losses, totaling $3,000 cannot be written off or carried over to other years.
How to Report Losses
You can only claim gambling losses if you are eligible to itemize your tax deductions, using a Schedule A. You’ll itemize if all your deductions plus your gambling losses are greater than the standard deduction. If you claim the standard deduction, you’ll still need to pay tax on all your winnings and report the money you won, even though you won’t be able to claim deductions.
Gambling Losses Only
You can’t simply subtract the losses you incurred from your winning and report only the net profit or loss. You also can’t deduct losses without reporting winnings, so if you had a terrible year, it won’t get better at tax time. The IRS can’t allow this because otherwise it would be subsidizing taxpayer gambling.
Losing money while gambling won’t decrease your tax liability. First, you’ll need to win and then pay tax on the winnings before you can even consider a deduction of losses. So essentially, deducting losses only grants you the ability to avoid paying taxes on the money you win.
