You’ve rolled the dice, spun the wheel, picked your horse, and crossed your fingers.
You’re on the edge of your seat until – the dice fall wrong, the wheel doesn’t land on your color, the horse falls behind in the race. Losing a bet is no fun, but there is a silver living.
If gambling winnings count as income on taxes, surely gambling losses count as deductions, right? In some cases, you can report your gambling losses on your taxes. Read on to learn more.
You Can Report Gambling Losses
Let’s start with the good news: you can report gambling losses as a deductible on your taxes! But there are a couple of conditions.
First of all, unless you’re a professional gambler, you’ll have to itemize your deductions to include losses. Since the new tax code doubled the standard deduction, you’ll probably come out worse if you do itemize.
Second, you can only report as much in losses as you’re reporting in wins. So let’s say you won $5,000 gambling last year, but you lost $7,000. You’ll only be able to report the first $5,000 in losses; the other $2,000 is a pure loss.
You Also Have to Report Wins
As you may already have guessed, while you can report gambling losses to get a deduction, you also have to report gambling wins. Gambling is a form of income, and Uncle Sam needs to get his cut. It’s a good idea to plan for this and put aside some of your gambling winnings for taxes when you get them.
Plan to save at least a quarter of your gambling winnings to go towards paying the taxes. Everything from $2 you won on a scratch-off ticket to a new car you won playing slots must go on your taxes as other income. You will need to report the fair market price of non-money winnings on your taxes.
Look for a Form W-2G
If you get more than $600 gambling in a year and the payout is more than 300 times the amount of your wager, you’ll probably get a Form W-2G. The same applies if you’ve won more than $1,200 playing bingo, more than $1,500 playing keno, and more than $5,000 playing in a poker tournament.
If you’re betting with a casino, they may give you the tax form the moment you win enough money to cross the threshold. You’ll need two forms of ID to complete the form, and you’ll need to provide your social security number. At the end of the year, the casino will send you the form to use on your taxes.
Check the Withholdings
If you win more than $5,000 on a wager where the payout is more than 300 times the amount you bet, the IRS requires that you hold 24 percent back as withholdings. There are special rules for bingo, keno, slots, and poker tournament winnings.
The good news is you’ll be able to report these withholdings on your taxes the next year. They will count towards the amount you owe and wither decrease the amount you have to pay or increase the return you get.
Keep Things Separate
If you won $8,000 gambling in a year and lost $2,000, it can be easy to think you made $6,000 that year. But the IRS views gambling wins and losses differently. You need to keep your winnings and your losses separate when you report your taxes.
If you choose to itemize on your tax return, you can still claim that full $2,000 in our example scenario. But you must also report that you won a total of $8,000. There is no net profit with gambling in the eyes of the IRS.
You may have already picked up on the idea that it’s incredibly important to record every single time you gamble. You aren’t going to remember in April what bets you made and how much you won or lost in Atlantic City last June. And especially if the gambling is happening with cash or in an informal setting, you may have no way of tracking down that income.
Set up a place where you record every one of your wins and losses every time you gamble. This can be a diary you carry with you and make notes in when you get ready to leave the casino. Or this could be the notes app on your phone or a spreadsheet – just record your gambling history somewhere.
You May Get Audited
Part of the reason it’s so important to report every dollar you win or lose gambling and to record when and where you won or lost it is because gambling increases your chance of getting audited. When you get that W-2G in the mail, the IRS will get one, too. And they’re going to be looking for that income to be reported come April.
Make sure you also follow all the rules for reporting losses when you file taxes. Supposed casual gamblers who report huge losses in the itemized deductions on their taxes send up a huge red flag with the IRS. And we can tell you, that is one wager you don’t want to take.
Get the Most from Your Taxes
Losing a wager is always disheartening, but the good news is you can report those gambling losses on your taxes. There are a lot of rules you’ll need to follow, and you don’t want to cross any lines with them. The IRS is waiting to pounce on anyone who they think may be trying to cheat on their taxes, so be sure you follow the rules to the letter.
If you need help dealing with a tax problem, reach out to us at Silver Tax Group. We can give you fast action and proven results to solve your tax issues. Get a free case evaluation today and learn how we can help you settle your tax problems.