If you've done some gambling, you may need to know about the applicable federal income
tax rules. They can be summarized as follows.
You must report 100% of your wagering winnings as taxable income on your Form 1040.
The value of complimentary goodies ("comps") provided by gambling establishments must
also be included in taxable income because comps are considered gambling winnings.
These amounts are subject to your regular federal income tax rate, which can be as
high as 39.6%.
If you itemize deductions, you can write off wagering losses on Schedule A of Form
1040. However, allowable wagering losses are limited to your winnings for the year,
and any excess losses cannot be carried over to future years. Also, out-of-pocket
expenses for transportation, meals, lodging, and so forth do not count as gambling
losses and, therefore, cannot be written off at all.
If you qualify as a professional gambler, your wagering winnings and losses are
reported on Schedule C of Form 1040. However, deductions for wagering losses are
limited to your winnings, and any excess wagering losses cannot be carried over to
future years (same as for amateurs). The good news here is that you can also deduct
travel expenses and other out-of-pocket costs of being a professional gambler.
In any case, you must adequately document wagering losses (and out-of-pocket
nonwagering expenses if you are a professional) to claim a deduction. The government
says you must compile the following information in a log or similar record:
- The date and type of specific wager or wagering activity.
- The name and address or location of the gambling establishment.
- The names of other persons (if any) present with you at the gambling
establishment. (Obviously, this is not possible when the gambling occurs at a
public venue such as a casino, race track, or bingo parlor.)
- The amount won or lost.
For example, the IRS says you can document income and losses from wagering on table
games by recording the number of the table that you played and by keeping statements
showing casino credit that was issued to you. For lotteries, your wins and losses can
be documented by winning statements and unredeemed tickets.
Last but not least, be aware that amounts you win may have to be reported to you on
IRS Form W-2G ("Certain Gambling Winnings"). In some cases, federal income tax may
have to be withheld, too. Anytime a Form W-2G is issued to you, the IRS gets a copy.
So the government will expect to see the winnings show up on your tax return.
Please call us if you have questions or want more information on the tax rules for
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opinions on specific facts or matters, and, accordingly, assume no liability
whatsoever in connection with its use. The information contained in this newsletter
was not intended or written to be used and cannot be used for the purpose of (1)
avoiding tax-related penalties prescribed by the Internal Revenue Code or (2)
promoting or marketing any tax-related matter addressed herein. © 2015