Gambling can be thrilling, but like anything else, it comes with risks one of which is losing money. However, if you’ve been unlucky at the casino or racetrack, you may be wondering: Can I deduct gambling losses from my taxes? The answer is yes—but with conditions. This guide will break down what you need to know about gambling losses and how they can be deducted in 2024.
Yes, You Can Deduct Gambling Losses—But Only If You Itemize
Gambling losses are deductible, but the first rule to remember is that you can only claim them if you itemize your deductions. This means you’ll need to file a Form 1040 and use Schedule A to itemize your deductions rather than taking the standard deduction.
If you usually take the standard deduction because it offers a bigger tax break, deducting your gambling losses won’t be an option for you.
Losses Can’t Exceed Winnings
The IRS lets you deduct your gambling losses, but there’s a catch: you can only deduct up to the amount of your reported winnings. For instance, if you won $5,000 from a big night at the poker table but lost $7,000 throughout the year, you can only deduct $5,000 of your losses.
So, while gambling losses are deductible, they won’t reduce your taxable income by more than
what you gained from gambling.
What Counts as Gambling?
Not all losses in games of chance count as gambling for tax purposes. Here’s a list of what the IRS generally considers as gambling.
- Casinos
- Lotteries
- Raffles
- Horse or dog races
- Sports betting
- Online gaming platforms
- Poker and card tournaments
Even activities like bingo and scratch-off tickets count as gambling, so if you participate in these and lose money, they may be eligible for deductions
Documentation is Essential
If you plan to deduct your gambling losses, keeping detailed records is critical. The IRS requires proof of the losses you claim. To do this, maintain a log of the following information for each gambling session:
- The date and type of gambling activity.
- The location of the activity.
- The amounts you won or lost
- Receipts, tickets, statements, or other relevant documentation.
You might also want to hold onto any W-2G forms issued by casinos, which report your winnings.
Additionally, the IRS recommends keeping a copy of your annual account statements from casinos or online gaming sites to further back up your claims.
Gambling Losses and Professional Gamblers
For most people, gambling is a recreational activity, but for a small group of professional gamblers, it’s a full-time job. If you’re a professional gambler, your gambling winnings and losses are reported differently.
Professional gamblers report their gambling income and losses on Schedule C (Profit or Loss from Business) instead of Schedule A. This means that gambling losses for professionals aren’t subject to the limitations imposed on hobbyists. You can deduct gambling-related business expenses in addition to your losses, which could reduce your taxable income significantly.
State Tax Considerations
Keep in mind that while the IRS allows you to deduct gambling losses, your state might have different rules. Some states don’t allow deductions for gambling losses, while others may only permit deductions up to a certain amount. Be sure to check with a tax professional or consult your state’s tax authority to understand the specific rules where you live.
Other Limitations on Gambling Deductions
There are a few more things to consider when it comes to gambling deductions:
- Miscellaneous Deductions: Gambling losses don’t count towards the 2% of adjusted gross income (AGI) floor that some miscellaneous deductions require.
- Net Operating Losses: Gambling losses cannot be used to create or increase a net operating loss (NOL) for tax purposes
Tips for Maximizing Your Deduction
While no one wants to lose money gambling, following these tips can help you maximize your deductions.
- Track Everything: Whether it’s a dollar scratch-off ticket or a high-stakes poker tournament, keep detailed records of all your gambling activities.
- Play with Winnings: If you win big, try to continue gambling with your winnings. This way, you’ll have enough losses to offset the amount, reducing the tax burden on your winnings.
- Consult a Tax Professional: If gambling is a regular activity for you, consider working with a tax professional. They can help ensure you’re taking advantage of all the deductions and help you navigate the complicated tax rules surrounding gambling.
Conclusion
Gambling losses can be deducted from your taxes, but only if you follow the IRS’s rules carefully. You’ll need to itemize your deductions, ensure your losses don’t exceed your winnings, and keep meticulous records to back up your claims. By following these steps and understanding the limitations, you can reduce the financial sting of a losing bet come tax time.
If you have more questions about gambling deductions or need help with your taxes, be sure to contact a tax professional.They can assist you throughout the process and help you reduce your tax liability.
