Gambling losses are indeed tax deductible, but only to the extent of your winnings. Find out more about reporting gambling losses on your tax return.
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Gambling losses are indeed tax deductible, but only to the extent of your winnings and requires you to report all the money you win as taxable income on your return. The deduction is only available if you itemize your deductions. If you claim the Standard Deduction, then you can't reduce your tax by your gambling losses.
The IRS requires you to keep a log of your winnings and losses as a prerequisite to deducting losses from your winnings. Your winnings include each win during the year.
You typically cannot offset your winnings from one day with your losses from another day in order to report your net winnings or losses. Your winnings and losses typically need to be separated and reported individually. The IRS does allow you to net your wins and losses on the same day for the same type of wagering if you meet certain requirements. This means that if you win at the slots one day and lose the next day, you have to report the winnings on your tax return as income and then deduct the losses separately as an itemized deduction.
Typical sources of winnings and losses can include:
Your records need to include the:
Other documentation to prove your losses can include:
In addition to deducting the actual cost of wagers, you can also deduct other expenses connected to your gambling activity, including travel to and from a casino.
The amount of gambling losses you can deduct can never exceed the winnings you report as income. For example, if you have $5,000 in winnings but $8,000 in losses, your deduction is limited to $5,000. You could not write off the remaining $3,000, or carry it forward to future years.
To report your gambling losses, you must itemize your income tax deductions on Schedule A. You would typically itemize deductions if your gambling losses plus all other itemized expenses are greater than the Standard Deduction for your filing status. If you claim the Standard Deduction, you:
You can include in your gambling losses the actual cost of wagers plus other expenses connected to your gambling activity, including travel to and from a casino. Keep in mind that the IRS does not permit you to simply subtract your losses from your winnings and report the difference on your tax return. And if you have a particularly unlucky year, you cannot just deduct your losses without reporting any winnings. If the IRS allowed this, then it's essentially subsidizing taxpayer gambling.
The bottom line is that losing money at a casino or the race track does not by itself reduce your tax bill. You must first report all your winnings before a loss deduction is available as an itemized deduction. Therefore, at best, deducting your losses allows you to avoid paying tax on your winnings, but nothing more.
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