Are Gambling Losses Tax Deductible?
One of the most common misconceptions about gambling is that it is not deductible – this is not entirely true. Though it’s not possible in all cases, there are ways to deduct your gambling losses. However, as you’ve probably already guessed, you need to meet certain requirements and do a fair share of paperwork. It also depends on where you live, where you pay taxes, how you gamble, or even what your gambling habits are.
Below, you will find all the basics you need to know to determine if your gambling losses are tax deductible and what to do if they are.
Deducting Gambling Losses in the United States
The IRS (Internal Revenue Service) clearly lists rules that apply to casual gamblers. Casual gamblers are those who enjoy gambling games without being in the gambling business or trade.
What Is Considered Taxable Gambling?
According to the IRS, gambling activities include casino games, horse or dog races, sports betting, raffles, and lotteries – but that’s not all. As such, any winnings gained from these activities are considered income.
Moreover, gambling winnings are taxable at both federal and state levels (excluding states with no income taxes). Also, it doesn’t matter if you gamble in the US or abroad; as long as you pay your taxes in the United States, all your winnings are taxable.
Can You Write Off Gambling Losses?
It is possible to deduct gambling losses from your federal income tax; however, not in all cases. First, you need to have kept a record of all your winnings and losses; then, you have to itemize your deductions. Moreover, the overall amount you deduct can’t exceed the amount of your gambling income that you report on your tax return.
How to Report Gambling Losses?
Gambling losses can be claimed up to the amount you have won as “other itemized deductions.” They have to be itemized on Schedule A (Form 1040).
How to Prove Gambling Losses?
As mentioned above, in order to deduct gambling losses, you need to have kept a record of all your winnings and losses. Such a record is an accurate diary or similar recordkeeping method that includes all your winnings and losses with receipts, tickets, statements, and other proofs that clearly show how much you have won and lost.
Your gambling log has to include details of when you have gambled, what you have played (or otherwise engaged in gambling), the name of the place you have gambled at (ideally with an address), and, of course, the amounts won and lost. It might also be helpful to list the names of people you have gambled with. It’s best to keep wagering tickets, credits records, canceled checks, or receipts.
You can find more information in Publication 529, Miscellaneous Deductions.
How Much Can You Deduct?
As mentioned above, if you want to deduct your losses, the overall amount of reported gambling losses can’t exceed your gambling winnings reported as your income. However, they can be written off partially.
For example, if you have won $500 and lost $1000, you can still deduct $500 of gambling losses.
What About Gambling Winnings?
All gambling winnings are fully taxable, which means you need to report them on your tax return as your income. Gambling winnings include everything from cash to fair market value of other prizes, e.g., cars, travels, electronic devices, etc.
How to Report Gambling Winnings?
If you win certain things through gambling or have any winnings subject to federal income tax withholding, you need to issue a Form W-2G, Certain Gambling Winnigns. However, specific requirements depend on the type of gambling, the ratio of the winnings to the wager as well as how much you have won.
Gambling winnings need to be reported as “other income” on Form 1040 or Form 1040-SR (including those that don’t need to be reported on Form W-2G). As a result, you may or may not be required to pay a tax on that additional income.
What If You’re Not an American Citizen?
If you’re not an American citizen but for income tax purposes you’re a nonresident alien of the United States, you must use Form 1040-NR, US Nonresident Alien Income Tax Return. However, it might be impossible to deduct your gambling losses if you’re a nonresident alien of the US from countries other than Canada.
It’s best to check with Publication 519, US Tax Guide for Aliens, Publication 901, US Tax Treaties, or Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.
Others Things You Should Know About Deducting Gambling Losses in the US
You can’t just write off gambling losses if you don’t report any gambling winnings; it’s not about the difference between the amounts won and lost.
However, if you qualify for a gambling losses deduction, you can write off any activities related to gambling, including traveling to a casino or fees.
If you need more details, visit the IRS website or consult a financial advisor.
Are Gambling Losses Tax Deductible in Other Countries?
Of course, it’d be impossible for us to include rules and policies of all existing countries here, so it’s always best to refer to your government’s revenue service’s website.
For example, in the United Kingdom, gambling winnings and losses aren’t taxable at all, mostly for logistical reasons. This also applies if you’re a professional gambler unless you’re paid an appearance fee (but then, you only pay the tax on the mentioned fee).
As such, your winnings are not subjected to any tax but you also can’t write off your losses. It’s the casinos and bookmakers who need to cover all the taxes.
In some cases, if your winnings exceed certain thresholds, they may be subjected to certain taxes, but it all depends on the individual situation.
In Canada, on the other hand, if you’re a recreational gambler, you don’t need to pay taxes on your winnings, but as a professional (if gambling is your primary source of income) – you must include this income on your tax report.
It’s similar when it comes to gambling losses; recreational gambles can’t write them off, but professionals can.
It doesn’t matter if you play online or in real life.
Bottom Line
Gambling has always been a popular pastime, and it’s not likely to change any time soon. While it’s great to win, the thrill of gambling is primarily in the risk. However, it also means that gambling can sometimes be quite taxing on your wallet.
Do you want to deduct your gambling losses? If yes, you’re probably wondering if it’s possible for you. In the US, you can deduct gambling losses, but only up to the amount of your winnings and only if you can prove the numbers. However, the rules and policies may vary from country to country.
Deducting gambling losses is possible, but not in all cases; it depends on where you’re gambling, where you pay taxes, what you play, or whether you’re a professional gambler. So, it’s best to check with your local laws and regulations or get professional financial advice if needed.