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Gambling Income and Losses

by administrator

November 10, 2022

When we think of gambling, our first thoughts may be of casino games or the lottery. However, the IRS requires all gambling income to be reported, including winnings from raffles, fantasy football, and even sports betting. With sports betting on the ballot in California in 2022, it might be a good time to revisit the IRS rules on gambling income and losses.

All Gambling Income Must Be Reported

All income earned through gambling must be reported to the IRS. This also includes any goods or trips won in a raffle or contest. For example, if you win a TV or a trip to Vegas in a raffle, you must claim the prize’s fair market value at the time that you won it.

Reporting cash winnings is more straightforward, but taxpayers should know that they are not allowed to subtract the cost of gambling from their winnings. In other words, if you place a $10 bet and then win $500, your taxable winnings would be $500, not $490. Both cash and the value of prizes should be reported as “Other Income” on your Form 1040. Larger payouts will typically result in Form W-2G, which includes reportable winnings, the date won, withholding amount, and wager type.

You Can Deduct Gambling Losses If You Itemize

While you cannot deduct the cost of your wager from your winnings, you can deduct your losses as long as you itemize your deductions. You can deduct losses up to the amount of the gambling income claimed. For example, if you won $1,000 but lost $3,000, you can only deduct $1,000. You must also include the $1,000 won in your income.

You Can Deduct More If You’re a Professional Gambler

If you gamble to make a living, you are also not allowed to deduct losses that exceed your winnings. However, you would be considered a self-employed individual and would be able to deduct “business expenses.” This can include magazine subscriptions that relate to gambling, internet costs if you place bets online, and travel expenses.

You Should Keep Adequate Records

If you are ever audited, the IRS will expect to see detailed records of your gambling winnings and losses. Whether you gamble professionally or casually, you should record the date, name of the gambling establishment, type of wager made, amount won or lost, and the names of anyone with you during the gambling. You should also keep copies of receipts, W2-G forms, wager tickets, and anything else that can supplement your gambling log.

Tax Relief for Gamblers

Whether you gamble casually or professionally, you must always report all gambling winnings. It may be tempting to report large losses and downplay your winnings, but reporting losses typically raises red flags with the IRS. This means higher chances of being audited by the IRS, which is a whole other issue. In short, it’s always best to report your gambling income and losses accurately. Optima Tax Relief can help with your tax debt needs. Give us a call at 800-536-0734 for a free consultation today.

Download the Optima Tax App to analyze your IRS notice instantly.

Finopulse

Disclaimer: This story is auto-aggregated by a computer program and has not been created or edited by Finopulse.
Publisher: Elyssa Carlos

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