Tax Tips for Claiming Gambling Income & Losses

Tax Tips for Claiming Gambling Income & Losses
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Let's face it. Gambling is fun. It could be betting in the office pool on the Super Bowl, or playing a full night of blackjack at the casino. It’s fun when you win, but the bad news is that the IRS is going to want their share of your gambling income when you do.

The IRS doesn't care whether you won ​$5 or $5,000​. It considers all gambling winnings to be taxable income. Here are a few tips on how to manage your gambling winnings and gambling losses and not run afoul of IRS regulations.

You Must Report All Winnings

The IRS doesn’t care how you won the money or prizes. It insists that you report on your tax return all winnings from:

  • Casino games
  • Lotteries
  • Poker tournaments
  • Raffles
  • Horse and dog races
  • Keno
  • Bingo
  • Sweepstakes
  • Sports betting

You report winnings on line 8 of your 2021 Form 1040 as “other income.” This requires first entering the information on line 8b of Schedule 1, then transferring the total from line 10 of the schedule to your Form 1040 tax return.

All non-cash winnings, such as cars and trips, must be reported at fair market value.

All Winnings Are Fully Taxable

All winnings are taxable, and none are exempt, not even non-cash prizes and awards. Non-cash winnings are treated as income even though you didn't receive cash, and you have to pay tax on their value. Oddly enough, you may have to sell the award just to pay the tax if you don't have enough cash on hand to pay it.

You Should Receive IRS Form W-2G

In some cases, the gambling establishment will issue you a Form W-2G showing the amount of your winnings. The IRS requires gambling institutions to issue this form if your winnings are above a certain threshold and are subject to federal income tax withholding. The threshold varies depending on the type of game.

A gambling establishment must issue you a Form W-2 G if you win:

  • $600 or more​ when the amount is at least ​300 times​ the amount of your wager. This type of winning can happen if you win a trifecta at the horse track.
  • $1,200 or more​ playing the slot machines or bingo. Winnings are not reduced by the wager.
  • $1,500 or more​ from keno winnings, reduced by amount of wager).
  • $5,000 or more​ from a poker tournament, reduced by wager or the amount of the buy-in.

You must report all your winnings even if you don't receive a Form W-2G for some reason.

When Does the IRS Require Withholding?

The IRS requires that the gambling establishment to issue a Form W-2F and it requires withholding if your winnings, minus the amount of the wager, are:

  • More than ​$5,000
  • At least ​300 times​ the amount of the wager

The payer withholds federal taxes at a flat rate of ​24 percent​. Your copy of Form W-2G shows the amount of your winnings and the amount of federal tax withheld.

Itemize Your Deductions on Schedule A

You cannot deduct gambling losses if you take the standard deduction. You must use Schedule A and enter losses as “other itemized deductions" on line 16 of the 2021 form. You can't both itemize and claim the standard deduction in the same tax year.

The Tax Cuts and Jobs Act of 2017 effectively doubled the standard deduction beginning in 2018 and through at least 2025 when the TCJA potentially expires. The standard deduction for single filers is ​$12,550​ for tax year 2021, increasing to ​$12,950​ in 2022. Many more taxpayers are taking the standard deduction on their tax returns rather than itemizing their deductions as a result.

It wouldn't make sense to use the itemized method if the amount of your total itemized deductions, including your gambling losses, doesn't exceed the standard deduction you're entitled to claim for your filing status. You would lose the ability to deduct your gambling losses as a result.

You must have gambling winnings in order to deduct gambling losses. You can't deduct gambling losses to offset your other taxable income. So there's no deduction for losses if you have no gambling winnings. Reporting large gambling losses without also reporting any winnings is a sure way to trigger an IRS audit.

Report Winnings and Losses Separately

You cannot “net” your gambling losses against your winnings. You can only report your losses up to $100 if you won $100 playing Blackjack in one gambling session but lost $250 playing again later. Again, you can't deduct gambling losses in excess of your winnings. The IRS doesn't want to subsidize your losses by providing you with a tax break when you lose money.

What Is a Session?

It would be impractical to keep a log of each hand and whether you won or lost each time if you’re playing blackjack or poker for several hours. The IRS therefore allows you to consider a period of playing time as a “session” instead of trying to record each individual hand.

The net result of a playing session could be recorded as either winning or losing. You have the latitude to define your own playing session as long as you can back it up with good records and documents because the IRS doesn't clearly define what a session is. A playing session could be a few hours, a day or a trip. You just have to be able to define and validate your “session” for the IRS with good records.

Keep Good Records

The best policy is to document, document and then document some more. The IRS will likely accept your version of winnings and losses as long as you can document your gambling activities. You should keep:

  • Any receipts, tickets or any other records that show the amount of your winnings and losses
  • An accurate diary with records of your winnings and losses
  • Canceled checks and credit card statements

Your diary should include:

  • Date of gambling activity
  • Type of gambling activity
  • Name and address place of place where you were gambling
  • Names of other people who were with you at the time of your gambling
  • Amount of winnings and losses

Check If You Have to Pay State and Local Taxes

Most states require that you pay gambling taxes in the state where you won the money. These states tax all winnings earned within their borders. The gambling establishment issuing the W-2G also sends a copy to the state where the money was won, and they'll be expecting to receive your non-resident tax return.

Your resident state may require that you report your winnings, too, but it must offer a deduction or credit for taxes you've already paid to a non-resident state to avoid double taxation.