1. How To Write Off Gambling Winnings On Taxes
2. How To Write Off Gambling Winnings On Taxes Due
3. How To Write Off Gambling Winnings On Taxes Without

Yes, you can write off gambling losses on a tax return. You must first report some gambling winnings, so having a record of your results will be very useful. From here you can start to itemize tax deductions for all losses. Nonetheless, there is a limit on the losses you can claim; it depends on how much you won. For starters, you can only deduct losses up to the amount of your winnings, so any excess loss can’t offset other highly taxed income. Conversely, you might show a taxable profit. Suppose you have annual gambling winnings of $10,000 for 2017 and losses of $2,500. For example, if you were to report you had won $5000 gambling but had losses of $20,000, this could cause a red flag. Also, only professional gamblers can write off the costs of meals, lodging and other expenses related to gambling. And the surest way to invite an audit is by writing off what you lost at gambling but no gambling income.

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To be able to deduct gambling losses to offset some or all of your winnings, you will have to itemize your deductions. This means that you can't claim the standard deduction. Once you choose to itemize, you can write off all of your losses, up to your winnings, on line 28 of the Schedule A form.

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This article was fact-checked by our editors and Jennifer Samuel, senior product specialist for Credit Karma Tax®.

Gambling may just be a hobby to you, but there’s nothing casual about it when it comes to filing your federal income taxes.

Nearly two-thirds of Americans gamble, according to a 2016 Gallup poll. And while you might think that winning a few bucks from a scratch ticket or a weekend trip to Vegas isn’t a big deal, the government considers every dollar you win from gambling as taxable income.

As a result, it’s important to understand how to report your gambling winnings, what to include and how you can use your losses in your favor. Here are some things you should know about how gambling winnings are taxed.

1. You must report all your winnings

Depending on how much you won during the year, you may receive a Form W-2G listing your gambling winnings. But even if you don’t receive the form, you’re still required to report all your winnings as “other income” on your tax return.

“All cash and non-cash gambling winnings are taxable and should be reported as ‘other income,’ ” says Patrick Leddy, partner at Farmand, Farmand & Farmand LLP. This includes any winnings you received from casinos, lotteries, raffles or horse races. Non-cash winnings, such as prizes like cars or trips, are also considered taxable income and are taxed based on their fair market value.

To make sure you keep track of both your winnings and losses, record the following details every time you gamble:

• The date and type of your gamble or gambling activity
• The name and location of the gambling establishment
• Names of other people who were with you, if applicable
• How much you won or lost
• Related receipts, bank statements and payment slips

2. You can deduct some losses

No one likes to talk about how much money they lost gambling. But when it comes to your tax return, being honest can save you money. That’s because the IRS allows you to deduct gambling losses.

Though you may not be able to deduct all your losses.

“Taxpayers can deduct gambling losses only up to the amount of their gambling winnings,” says Leddy, “and only if they itemize their deductions.”

For example, if your gambling winnings totaled $5,000 in the tax year, but you lost $6,000, you can only deduct $5,000 of those losses. Keep in mind, itemizing your deductions may not afford you the maximum tax benefit. If your total itemized deductions — which can also include charitable donations, home mortgage interest and medical expenses — don’t exceed your standard deduction, itemizing might not be the optimum choice for you.

Can I deduct the cost of a gambling addiction recovery program?

IRS Publication 502 lists alcohol and drug-related addiction-recovery programs as eligible for the medical expense deduction. However, gambling addiction isn’t included. If you need help dealing with a gambling addiction, you can call the Substance Abuse and Mental Health Service Administration’s 24/7, 365-days-a-year hotline at 1-800-662-4357.

3. Even illegal gambling winnings are taxable

According to the American Gaming Association, it’s estimated that Americans spend more than $150 billion per year on illegal U.S. sports betting — and yes, that can include your office March Madness pool.

A May 2018 U.S. Supreme Court ruling opened the door for states to legalize sports betting, but not all have done so. That said, any winnings you receive from betting on sports legally or illegally (or from any illegal activity, for that matter) are still taxable.

Bottom line

So how are gambling winnings taxed? Every dollar you win from gambling, whether legally or not, is considered taxable income. As a result, it’s critical that you keep a record of your winnings so that you can report them accurately. You’ll also want to keep track of your losses so that you can use them to qualify for a tax break.

Once you’re ready to file your taxes, Credit Karma Tax® can help show you where to include both your winnings and your losses so that you can maximize your tax refund if you’re owed one.

Jennifer Samuel, senior tax product specialist for Credit Karma Tax®, has more than a decade of experience in the tax preparation industry, including work as a tax analyst and tax preparation professional. She holds a bachelor’s degree in accounting from Saint Leo University. You can find her on LinkedIn.

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We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

This article was fact-checked by our editors and reviewed by Christina Taylor, MBA, senior manager of tax operations for Credit Karma Tax®.

Betting on sports is part of the fun for many sports fans — even if their wagering hasn’t always been technically legal.

Until a May 2018 U.S. Supreme Court decision opened the door for every state to legalize sports betting, just four states allowed wagering on sports — Nevada, Delaware, Montana and Oregon. Legality, however, hasn’t stopped Americans from betting on sports. In fact, the American Gaming Association estimates that Americans spend more than $150 billion a year on illegal sports betting.

Since the Supreme Court’s ruling, New Jersey, Pennsylvania, West Virginia, Mississippi and Rhode Island have legalized sports betting. And at least 14 other states are considering laws to permit wagering on sports.

But when you gamble on sports, it won’t matter to the IRS if your winnings came from a legal bet or from one that’s off the books. Your winnings are taxable income either way.

If you plan to do some wagering in a state that’s legalized sports betting, it’s important to understand how tax on your winnings will work. Let’s take a look at how the IRS treats gambling winnings of any kind.

Sports-betting winnings are taxable income

The big question for sports gamblers: Are your winnings taxable income? As we said above, the answer is yes.

“Gambling winnings are fully taxable and you must report the income on your tax return,” the IRS says. “Gambling income includes but isn’t limited to winnings from lotteries, raffles, horse races and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips.”

Although sports betting isn’t one of the examples, it’s still covered by “gambling winnings.”

Whether sports betting is legal in the state where you place your bet doesn’t matter to the IRS. If you win, you have taxable income, which should be reported when you file your tax return.

These rules apply only to casual sports bettors. If you’re a pro — “in the trade or business of gambling,” as the IRS puts it — different rules apply.

How much tax you’ll owe depends on your personal tax situation and tax bracket.

You might also owe state income tax on any money you win from betting on sports, depending on which state you live in. For example, Nevada doesn’t have a state income tax. But Maryland does, and it considers winnings from gambling taxable income. If you win money betting on sports, check with your state to see if it taxes gambling winnings.

Form W-2G: Evidence of your sports-betting win

So you win a couple thousand bucks betting on your favorite sports team. How will the IRS know if you don’t tell it? Well, whomever you won the money from — a casino, racetrack, etc. — is supposed to report your winnings to the IRS on Form W-2G. The form tells the IRS some important information, including …

• Contact information for the payer who awarded you the winnings, including phone number, address and federal tax identification number
• Your name, address and taxpayer identification number
• How much you won
• When you won it
• What kind of wager you made
• And how much, if any, federal and state income tax the payer withheld from your winnings

Generally, the payer has to report your winnings if …

• You won $1,200 or more from a bingo game or slot machine
• You raked in $1,500 or more at keno
• Your poker victory tops $5,000
• You won $600 or more and your winnings are at least 300 times the amount of your bet (bingo, slots, keno and poker are exceptions to this rule)
• The payor withheld federal income tax on the winnings

Penalties for not reporting sports-betting income

Of course, the IRS wants you to report all your taxable income, and if you don’t you could face penalties and interest on any tax you owed but didn’t pay.

Generally, the penalty for not paying income tax that you owe is 0.5% of the unpaid tax. That rate is assessed monthly until you pay the tax you owe. Unpaid tax and penalties typically accrue interest, too — 5% compounded daily from the due date of your tax return to the date when you actually pay in full the balance of any tax, penalties and interest you owe.

However, if you’re caught intentionally omitting income — like gambling winnings — from your tax return in order to avoid paying tax on that income, it could mean additional penalties. According to the tax code, trying to “evade or defeat” tax you owe on income you’re required to report could be a felony with fines of up to $100,000 for individuals or five years in prison. Plus, people convicted of tax evasion can be held responsible for the costs of prosecution.

Lose a sports bet? It might be deductible!

How To Write Off Gambling Winnings On Taxes

Just as sports-betting winnings are considered taxable income, losses may be tax-deductible if …

• You itemize your deductions
• You keep detailed records of your winnings and losses

“To deduct your losses, you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses,” the IRS says.

Any losses you deduct cannot exceed winnings that you report when you file your return. For example, if you reported winnings of $5,000, you could deduct losses only up to that amount. Additional losses would not be deductible. And if you lost $5,000 but didn’t win anything, you wouldn’t be able to deduct those losses at all.

If you’re eligible to deduct your sports-betting losses — or any other gambling losses — you’ll do so on Schedule A, Line 28, “Other Miscellaneous Deductions.”

How To Write Off Gambling Winnings On Taxes Due

Bottom line

More than a quarter of Americans like to bet on football, 21% are interested in betting on baseball or basketball, and 20% would put some money down on a hockey game, according to Nielsen Sports. If you’re a fan of sports wagering, it’s important to understand that tax on sports betting is nothing new.

The IRS has always considered gambling winnings taxable income, and it expects you to report all your taxable income — even the money you win betting on sports.

How To Write Off Gambling Winnings On Taxes Without

If you’ll be reporting gambling winnings on your federal income tax return, or hoping to write off some gambling losses, be sure to keep detailed records of your wagers and losses.

Christina Taylor is senior manager of tax operations for Credit Karma Tax®. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.

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