According to the IRS, gambling income includes, but is not limited to, monies received from:
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.
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*:
* 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:
In addition to your personal records, there are several other ways to prove your winnings or losses:
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:
When it comes to tax deductions from gambling losses, there are a few things to consider:
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.
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:
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%
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