Sports betting and gambling is a two-edged sword – fun or depressing depending on your outcome. On top of that, gamblers have to deal with the complication of taxes as Uncle Sam believes it must have its cut from your winnings. The good news is that expenses are deductible, depending on whether you are a casual or professional gambler.
You must report and track gambling income.
All the money you win from gambling needs to be reported on your federal income no matter what you spend on the ticket and what you win. Line 21 – other Income (IRS Form 1040 Schedule 1) needs to carry the earnings.
Keeping track of your gambling income is very important, which you can do by recording your gambling activities. For example, you can use a spreadsheet on your PC or phone or dedicate a book with the records of all your winnings.
Deductible Gambling Expenses
There are expenses you can deduct, no matter your gambling level – professional or casual. You, however, need to know the level you are at, as this is important to deduce the actual expenses you can deduct.
Casual Gamblers
A casual gambler does not gamble for business or trade; as a result, they can only deduct their wagers up to their winning amount. As a result, if all your winning for a year is $1000 and you spent $3000 on a bet, you can only deduct $1000.
Also, this deduction is possible only via the itemizing route as they cannot take the deduction with the standard deduction. Gambling losses are reported on Form 1040, Schedule A – Other Itemized deduction.
Professional Gamblers
This is someone that gambles as part of business or trade. With this, your gambling expenses and income will be reported on IRS Schedule C Profit or Loss from the business.
Professional gamblers have the advantage of being able to deduct above their wagers for their gambling activities. Expenses like lodging, transportation, meals, etc., are called non-wagering expenses and are allowed for deduction provided they are all related to gambling.
Before, professional gamblers could deduct expenses above their gambling income to report a loss from such activities. This, however, changed due to recent laws.
Adequate Record is Important
You need to have a sound record of your gambling winnings and losses, no matter if you are casual or professional, since it is important to report all your winnings. Irrespective of the accuracy of your record, you must report, which makes it important to keep records.
Good records will help you claim needed expenses, and you might not be allowed to claim gambling losses without an accurate record.
Here are some guidelines from Uncle Sam on what an accurate record is. Your record needs to have some information like
The date and nature of the exact wagering activity
The name and location of the gambling place
Details like the name of people with you at the gambling place
The amount you won or lost.
Uncle Sam also has a suggestion for keeping records of gambling activities.
Reporting and Withholding of Gambling Income
There are cases in which a gambling firm might report your winnings. Should they withhold taxes, they will report such taxes to Uncle Sam as well.
The firm will likely give you For W2G – Certain Gambling Winnings. Based on the instruction of the form, you must be given this form if you got:
$1200 or above in winnings from gambling from slot and bingo machines
$1500 or above in keno winnings
Above $5000 in winnings from a poker tournament
Other gambling winnings
In some cases, the federal income tax will be deducted from your winnings. There are different withholding rules based on the gambling type. The value of federal income tax withheld will reflect on IRS form W2G, with a standard withholding rate of 24%.
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Pat Raskob