According to the IRS, gambling income includes, but is not limited to, monies received from:
- Horse and dog races
- Casino games
- Poker games
- Sports betting
This includes winnings received from online gambling, whether from legal US gambling sites or offshore sites.
For tax reporting purposes, the IRS does not permit you to subtract your losses from your winnings as a net figure of income earned.
Filing Tip: Losing money at the sportsbook or casino does not automatically lower your tax bill. You must first owe tax money on winnings before a loss deduction is permissible. Deducting your losses allows you to avoid paying taxes on your gambling winnings, but nothing more.
Record Keeping and Receipts
The IRS requires you to keep records or logs of your winnings and losses as a prerequisite to claiming any losses as a deduction from tax obligations on your winnings.
This is not just limited to monies received, as it also includes the fair market value (FMV) of any prizes won such as cars, trips, and jewelry.
Your records must include*:
- The date and types of gambling you engaged in
- The name and address of the places where you gambled
- The people you gambled with
- The amount won or lost
* These recordkeeping suggestions are intended as general guidelines to help you establish your winnings and losses. They aren’t all-inclusive. Your tax liability depends on your particular facts and circumstances.
Depending on your game of choice, below are a few recommendations of things to keep track of:
- Copies of the keno tickets you purchased that were validated by the gambling establishment
- Copies of your casino credit records
- Copies of your casino check cashing records
- A record of the machine number and all winnings by date and time the machine was played
- The number of the table at which you were playing
- Casino credit card data indicating whether the credit was issued in the pit or at the cashier’s cage
- A record of the number of games played
- Cost of tickets purchased
- Amounts collected on winning tickets
- Supplemental records may include any receipts from the casino, parlor, etc.
Sports Betting & Horse Racing
- A record of the games/races, amounts of wagers, amounts collected on winning tickets
- Amounts lost on losing tickets
- Supplemental records may include unredeemed tickets and payment records from the sportsbook or racetrack
- A record of ticket purchases, dates, winnings, and losses
- Supplemental records may include unredeemed tickets, payment slips, and winnings statements
In addition to your personal records, there are several other ways to prove your winnings or losses:
- Form W-2G
- Certain gambling winnings
- Form 5754
- Statement by person(s) receiving gambling winnings
- Wagering tickets
- Canceled checks
- Substitute checks
- Credit records
- Bank withdrawals
- Statements of actual winnings
- Payment slips provided to you by the gambling establishment
Filing your Tax Forms
There are several requirements in order to report your gambling losses on your tax return. For starters, you must be eligible to itemize your income tax deductions on Schedule A.
You are eligible to itemize deductions if your gambling losses, plus all other itemized expenses, are greater than the standard deduction for your filing status.
What does this mean?
It means that if you claim the standard deduction, you are still obligated to report and pay tax on all winnings you earn during the year. You will not be able to deduct any of your losses from your winnings if you opt for the standard deduction.
For professional gamblers the rules are a bit different:
- Gambling income is considered regular earned income and is taxed at your normal effective income tax rate.
- As a self-employed individual, you will need to report your income and expenses on Schedule C.
- Filing Tip: You can deduct gambling losses as job expenses using Schedule C, not Schedule A
When it comes to tax deductions from gambling losses, there are a few things to consider:
- The amount of losses you can deduct can never exceed the winnings you report as income
- You can deduct gambling losses up to the amount of gambling winnings as miscellaneous itemized deductions. These are not subject to the normal 2% adjusted gross income limit.
- Filing Tip: Report these items on Schedule A (Form 1040), line 28, or Schedule A (Form 1040NR), line 14.
For example, if you have $2,000 in winnings but $5,000 in losses, your deduction is limited to $2,000. You could not write off the remaining $3,000, or carry it forward to future years.
Collecting your Winnings
If you hit it big then congratulations! Keep in mind that for the more money received the more paperwork that comes with it. The payer must provide you with a Form W-2G if you win:
- $600 or more if the amount is at least 300 times the wager
- $1,200 or more in winnings from bingo or slot machines
- $1,500 or more in winnings from keno
- More than $5,000 in winnings from a poker tournament
- From other wagers and the payout is 300 times the amount of the wager, $600 or more
Filing Tip: Provide the payer with your tax ID number:
If your winnings are reported on a Form W-2G, federal taxes are withheld at a flat rate of 25%. If you did not provide the payer your tax ID number, the withholding rate is 28%