Posted by The TaxAdvocate Group, LLC

Tax Advice For Gambling Profits And Losses

Tax Advice For Gambling Profits And Losses

The American gaming industry is booming. New sports casinos and bookies are popping up across the country, Las Vegas is booming, lotteries are popular, and online gambling is great. Of course, there are several possibilities to bet on if you like to gamble. And, if this sounds like you, we hope you come back a winner.

If you are fortunate enough to win some money with a smart bet, don't forget that Uncle Sam wants his share. So, before you spend all the money gotten from the jackpot, here are some things to keep in mind about winning and losing taxes. 

Claiming Gambling Income

Taxpayers who are not professional gamblers must report gambling winnings as "other income" on line 8 of Schedule 1, then on line 7a of Form 1040.

Deduct Your Gambling Fees

Expenses related to gambling, betting, lottery tickets, and similar gambling losses can be deducted as miscellaneous deductions, on line 16 of Schedule A, "Other Itemized Deductions." It should be noted in the space provided that they are bets lost.

You cannot just deduct the expenses from your income and report the difference as gambling income. Gains and losses appear in two separate forms and two separate positions on the Form 1040.

Yes, the Tax Cuts and Jobs Acts (TCJA) eliminated most itemized deductions from 2018 to at least 2025, but only those subject to the 2% rule. You can only deduct the part that exceeded the percentage of adjusted gross income (AGI). This rule does not apply to losses, and TCJA has left the deduction intact.

However, you still have to face a limit. Losses related to gambling transactions are limited to the amount of declared income. You can use the losses incurred to offset your gambling income, but you cannot use your remaining losses to deduct other income sources. You might have spent $ 6,000 to earn $ 3,000, but you cannot deduct $ 6,000, not even the difference of $ 3,000. You are limited to a deduction equal to $ 3,000.

Now the good news: you can deduct other expenses if you earn enough to cover them, like the cost of the trip to the casino or the race.

Professional Gamblers

A player is considered a professional if he plays all his life and not just for fun and excitement. Professional players report their income and expenses listed in Schedule C as self-employment income. Schedule C's net income is subject to federal income tax and self-employment tax, plus any income tax. You can use excess losses and expenses to gradually reduce other taxable income if you are a professional gambler.

Record-Keeping for Gambling Activities

The IRS expects professional players to keep track of bets and winnings. This can be a simple journal of your profit and loss but should include the date, type of gaming activity you participated in, the name and location of the gaming unit, or whether you participated online and how much you won or lost. 

You should also have other documents besides a journal. In general, you can base your wins and losses on:

  • Banking account statements on online gambling sites

  • Form 5754: " Statement by Person(s) Receiving Gambling Winnings."

  • Form W-2G: "Some Gambling Wins."

  • Gambling reports, canceled checks, credit records, bank withdrawals, and actual winnings or proof of payment provided by the gambling establishment.

A gambling institution is only required to issue a Form W-2G if its income is subject to federal withholding tax.

Game by Game Analysis

The IRS says you must also record the following to support gains and losses for certain gambling transactions, where possible:

  • Bingo: recording the number of games played, the cost of tickets purchased and the amounts charged to winning tickets. Additional listings include all casino or lounge receipts.

  • Keno: Copies of the keno tickets you have purchased that have been validated by the gambling institution, copies of casino credit records, and copies of casino discount check records.

  • Lotteries: recording of ticket purchases, dates, wins, and losses. Additional records include unclaimed tickets, receipts, and income statements

  • Races (horse, harness, or dog): a race file, the amounts of the bets, the amounts deducted from the winning tickets, and the amounts lost in the event of losing tickets. Additional registrations include unclaimed tickets and payment records

  • Slot machine: a record of the machine number and all winnings after the date and time it was played.

  • Table games (blackjack, craps, poker, baccarat, roulette, or wheel of luck): the number of the table you are playing at and the casino's credit card details indicating whether credit has been issued for goods or money.

Withholding on Gambling Winnings

Gambling winnings are subject to federal withholding tax at a rate of 24% when you win over $ 5,000 in lotteries, betting funds, lotteries, or other betting operations where the winnings are at least 300x the amount wagered. The merchant must report the number of winnings and charges withheld on Form W-2G in these cases, sent to the winner and the IRS.

In addition to issuing a W-2G Form when withholding is required, casinos will also issue a W-2G Form when withholding is not expected for the following types of winnings: 

  • $ 1,200 or more in slot machines or bingo winnings

  • $ 1,500 or more in keno winnings

  • $ 5,000 or more in poker winnings from 5 tournaments

Sharing Gambling Winnings

Complete Form 5754 if two or more people will share the winnings. The casino will split the winnings between players and then report them on separate W-2G forms to the IRS with each winner's name.

The Internal Revenue Service provides an interactive tool to help you uncover all of this and properly claim your gains and losses.

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