Income Tax Treatment of Gambling Income and Losses
Whether you roll the dice, bet on the ponies, play cards or enjoy slot machines, you should know that as a casual gambler, your gambling winnings are fully taxable and must be reported on your income tax return. The basic rule is that a taxpayer reports income "from whatever source derived." You can also deduct your gambling losses, but only up to the extent of your winnings.
Here are some of the basic tax rules for gambling activities:
Gambling income includes, but is not limited to, the following winnings:
- Lotteries including lump-sum payments received from the sale of future lottery payments
- Horse and dog races
- Bets on athletic contests
- Prizes: The fair market value of prizes such as cars and trips are fully taxable income.
Tax Reporting By Third Parties
If you receive a certain amount of gambling winnings or if you have any winnings that are subject to federal tax withholding, the payer is required to issue you a Form W-2G, Certain Gambling Winnings.
The payer must give you a W-2G if you receive:
- $1,200 or more in gambling winnings from bingo or slot machines;
- $1,500 or more in proceeds (the amount of winnings minus the amount of the wager) from keno;
- More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament;
- $600 or more in gambling winnings (except winnings from bingo, keno, slot machines, and poker tournaments) and the payout is at least 300 times the amount of the wager; or
- Any other gambling winnings subject to federal income tax withholding.
Note: Gambling winnings must be reported as income even if no Form W-2G is issued to the taxpayer.
Where to Report Gambling Winnings on Your Tax Return
Generally, you report all gambling winnings on the “Other income” line of Form 1040, U.S. Federal Income Tax Return.
Where to Report Gambling Losses on Your Tax Return
You can claim your gambling losses up to the amount of your winnings on Schedule A, Itemized Deductions, under ‘Other Miscellaneous Deductions.'
Note: You must report the full amount of your winnings as income and claim your allowable losses separately. You cannot reduce your gambling winnings by your gambling losses and report the difference.
Your records should also show your winnings separately from your losses.
Note: Travel, meal and entertainment expenses are not deductible for a nonprofessional gambler.
Keeping Accurate Records
As with all tax considerations, keeping accurate records is essential. If you are going to deduct gambling losses, you must have receipts, tickets, statements and documentation such as a diary or similar record of your losses and winnings. The log should include the date, location, amount, type of gambling and results. Because winnings must be reported in full, not netted against losses, winnings and losses should be kept separately.
Please do not hesitate to contact our office if you have any questions or want to do some year end tax planning.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.