Deducting gambling losses from your taxes
Gambling winnings are taxed like regular income! How would the IRS know about thisif you didn’t tell them? Simple: If you win $1200 or more on a slot or video poker machine or bingo, or cash in $10,000 or more in chips at the cage in any given day, thenyou’ll have to show your ID and fill out a tax form.
The IRS does let you deduct gambling losses from gambling winnings, though. Youcan’t deduct more than your winnings, of course, the IRS isn’t that stupid.You can’t say you won $1,000 and lost $5,000, for a net loss of $4,000. If thatwas your actual experience, you could apply $1,000 of your losses towards your $1,000in winnings so you wouldn’t owe any tax on your winnings.
Let’s say you get lucky and have a big win. At that point you want to deduct yourlosses from your winnings to reduce your taxes. How do you find your losses? Here’swhere having a Player’s Card at the casino comes in handy. Since casinos track players’action when they have a card, the casino can give you a report of how much you lostwhen tax time comes around. Of course, it’s best if you also keep your own log ofyour play. Here’s a free Win/Loss Tracking Form (PDF)you can download.
Note that as of this writing, there is current activity in the United States Senate(bill S.972) “To Amend the Internal Revenue Code of 1986 to prohibit any deductionfor gambling losses”. Obviously, this strikes us as rather unfair. If you won $3,000and lost $2,000, then your real winnings were only $1,000 and that’s what shouldbe taxed. But if certain legislators have their way, they’ll consider that yourincome from gambling is $3,000 and your losses don’t count.
We are neither accountants nor lawyers so nothing in this article should be construedas a replacement for advice from a competent professional. For more info about theimpact of taxation on winnings we recommend the book The Gambler’s Guide to Taxes by Walter L. Lewis, CPA.