Gambling Winnings, Losses, and Income Taxes
Glenn Tyndall, CPA
Gambling winnings are always taxable.
Millions of people gamble every day and in all sorts of ways, such as playing games of chance at casinos, placing wagers on horses, and buying lottery tickets. Sometimes you win, and sometimes you lose, and there are tax consequences for both. The full amount of your gambling winnings for the year must be reported on line 21 of IRS Form 1040.
What's included in gambling winnings?
According to the IRS, gambling income “includes – but is not limited to – winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes.”
IRS gambling reporting requirements: W2-G
Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment. You may not use Form 1040A or 1040EZ. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form.
You will receive a form W-2G for your gambling winnings when you have:
- gambling winnings of $600 or more at a horse track if that amount is at least 300 times your bet;
- gambling winnings of $1,200 or more at a slot machine or bingo game;
- gambling winnings of $1,500 or more in keno; or
- gambling winnings of $5,000 or more in a poker game.
In many cases, if a W2-G is issued, estimated federal income tax withholding of 25% or 28% of winnings will be taken and remitted to the IRS immediately.
Are gambling losses tax deductible?
Gambling losses are tax deductible. To deduct your losses on your tax return, you must be able to provide receipts, tickets, or other support to ensure that the gambling losses are tax deductible. You cannot deduct gambling losses that are more than your winnings. Gambling losses are tax deductible as miscellaneous itemized deductions, which are not subject to the 2% of Adjusted Gross Income (AGI) limit.
Limited deductibility of Losses
The Internal Revenue Code limits the amount of gambling losses that are deductible. You can take a deduction up to the amount of your gambling gains. Gambling losses in excess of gambling income cannot be "carried back" to prior tax years or "carried forward" to future tax years.
Gambling professionals are in the trade or business of gambling. Gambling professionals usually derive a significant portion of income from gambling activities. Like recreational gamblers, gambling professionals can only take a deduction for losses up to the amount of your gains. As a professional gambler, you claim your losses as a "business expense" and winnings as "business income" on IRS Form 1040, Schedule C.