In conclusion, the Tax Law clearly indicates that Petitioner may claim his gambling losses only as an itemized deduction in accordance with Tax Law § 615. Petitioner is not allowed a subtraction modification for gambling losses in his computation of New York adjusted gross income. DATED: August 31, 2016 /S/ DEBORAH R.

1. Oct 09, 2020 You may deduct gambling losses only if you itemize your deductions on Schedule A (Form 1040 or 1040-SR) PDF and kept a record of your winnings and losses. The amount of losses you deduct can't be more than the amount of gambling income you reported on your return.
2. Declaration of Estimated Tax, and pay the tax on that income within 60 days of the time you receive the prize money. You can claim a credit for taxes paid with the 502D on your annual income tax return. Failure to pay the estimated tax due or report the income could result in penalty and interest charges.
3. Claim your gambling losses on Schedule A, Itemized Deductions, under ‘Other Miscellaneous Deductions’. The IRS recommends that you keep a written documentation, like a notebook or a diary, for proof in case of an audit and to keep winnings and losses separate and organized.
4. To claim your gambling losses, you have to itemize your deductions. Gambling losses are a miscellaneous deduction, but - unlike some other miscellaneous deductions - you can deduct the entire.

Claiming Gambling Losses On Taxes

We have talked about poker players and taxes before. However, questions remain for many players. So, USPoker.com recently spoke with Nathan Rigley, lead tax research analyst with H&R Block.

His words rang true as advice for every poker player. Whether you’re a reg at a local card club, a top touring pro or someone in between, you need to consider your tax obligations when you play poker.

All winnings are taxable

First and foremost, all gambling winnings are taxable — no matter the amount.

Gambling Problem

“Just because a taxpayer doesn’t receive a tax form does not make the winnings tax-free,” Rigley said. “Taxpayers still have a responsibility to report their prize on their tax return as ‘other income.’”

Those winning a larger amount at a casino are likely to receive a tax form, and the IRS will also receive that form. Not reporting it can have some ugly consequences, including:

• Audits
• Penalties
• Interest

Don’t leave anything to chance and don’t try to conceal. Report those winnings to avoid a lengthy, and uncomfortable, visit with the IRS.

Keeping records helps in the long run

The IRS recommends gamblers keep an accurate diary or records to substantiate wins and losses on a tax return. For poker players, that includes sessions at the tables, buy-ins and amount won or lost.

You read that correctly; record losses because you can be deduct them against winnings. Winners can deduct losses, but only as much as the amount won.

For example, a player who wins $200,000 in a big Sunday tournament online must report those winnings to the IRS. Let’s say that, in the same year, that same player lost $32,000 worth of tournament buy-ins, but profited $9,000 at cash games.

Altogether, this player will have total taxable winnings of $177,000 ($200,000-$32,000+$9,000). So, losses can help players send less of their cash to the US Treasury.

Planning is important

When it comes to tracking wins and losses, here’s what Rigley recommends to include in gambling records:

• Date and amount wagered, including tournament buy-ins
• Name and location of betting or tournament
• Amount won or lost

Obviously, online poker makes this task easier. Players can review buy-ins and wins and losses easily.

However, don’t merely rely on the poker software to keep your records. It is beneficial to review often and keep track independently.

Bettors should also keep verifiable documentation of losses and expenses including:

• Buy-in tickets
• Canceled checks
• Credit card records

As a Boy Scout, when it comes to taxes, be prepared.

Remembering expenses

This year, tax filers have some new rules. For poker players, the Tax Cuts and Jobs Act changed many aspects related to itemized deductions.

That includes the elimination of miscellaneous deductions that were subject to a 2% floor of adjusted gross income.

“This has been impactful for many taxpayers,” Rigley said. “Luckily, the deduction for gambling losses, though a miscellaneous deduction, was not subject to this floor.”

So, poker players can continue to claim gambling losses as an itemized deduction toward their gambling income. However, it is important to stay abreast of any changes to the tax code each year.

Are there differences in sports betting, poker, and other gambling?

To the IRS, there generally is no difference in various forms of gambling. The only difference may be if a taxpayer treats gambling as a sole means of earning a living.

Bear in mind, however, that the IRS is not a law enforcement agency. Even those who wager where it may not be legal are still expected to report winnings in their tax returns.

“Income from illegal gambling is treated exactly the same as those who participate in legal gambling,” Rigley says. “Gambling doesn’t make the winnings tax-free. Taxpayers who make illegal wagers and win still need to report the income on their tax return. If the taxpayer itemizes deductions, they can still deduct the loss to the extent of gain.”

Pros should treat poker as a business

Full-time players or those who view the game as more of a career have some different benefits and requirements. For instance, a pro player may be able to file as a business with a Schedule C form.

These players can also deduct expenses like a business or someone who works for himself. So, things like travel expenses, meals when at tournaments, and other business-related expenses may qualify as deductible for tax purposes.

However, filing as a business also has some additional requirements. Notably, players are potentially subject to self-employment tax and possible quarterly estimated payments. So, keeping good records and receipts is important.

There’s one additional requirement under the new tax reform. Players can no longer deduct non-wagering business expenses in excess of net wagering income. That keeps players from claiming a loss.

Save a chunk for the IRS

Players who score big in an event are advised to set a big piece of that cash aside for future taxes.

“We always suggest that the first check they should write is the IRS for an estimated payment on the taxes they will owe on those winnings,” Rigley says. “This is essentially a deposit toward your tax liability.

“The reason we suggest this is that it helps to avoid any underpayment penalties for failing to deposit enough taxes throughout the year, and psychologically it seems easier to write that check when the income is new rather than be hit with the balance due down the road when the return is filed.”

A player may also want to consider investment vehicles such as a Roth IRA or other options to lower their tax burden. An IRA also helps players plan for retirement and possible lean times.

Filing your taxes and writing a check to the IRS is never fun. However, making a concerted effort throughout the year can help take the sting out of the process.

Most gamblers hope to win money when they visit a casino, but many fail to think about the taxes they would have to pay on their winnings. Meet George and Frank, two American friends who spend a weekend gambling at the Las Vegas Bellagio. George wins $200 playing video roulette. Frank wins $1500 on a quarter slot machine (Play here). Both men make some significant financial mistakes that could get them into trouble with the IRS.

Mistake # 1 - Frank Fails to Pay Taxes on His Winnings

Before leaving the casino, Bellagio officials ask Frank to supply his Social Security number and fill out a W - 2G stating his $1500 winnings. When tax time rolls around, Frank forgets about the W – 2G and does not report the $1500 on his tax forms.

Could Frank Get in Trouble?

If Frank gets audited, he could indeed get in trouble with the IRS for failing to report his gambling income. Federal law mandates that slot machine winnings over $1200 must be reported to the IRS. The law also requires horse racing winnings over $600 and keno (click here) winnings over $1500 to be reported. Frank's legal obligation does not end with the W - 2G he filled out at the casino; he must also claim his winnings on Line 21 of his 1040. Failing to do this could result in stern penalties from the IRS.

What About George?

Bellagio officials did not ask George to fill out a W – 2G because his $200 earnings fell below the IRS threshold. Technically, however, he is supposed to claim his $200 winnings on Line 21 of his 1040 just like Frank. Unlike Frank, George stands little chance of getting caught if he fails to do this because there is no paper trail documenting his jackpot (read more). The only punishment George is likely to suffer is the discomfort of a guilty conscience.

If your winnings surpass the predetermined threshold, casino proprietors are required by law to have you fill out a W – 2G which reports your extra income. If you fail to submit this information to the IRS at tax time, government officials could catch a whiff of your paper trail and come after you. If your casino winnings do not surpass the predetermined threshold, you are still required by law to report the money, but without written evidence, the IRS stands little chance of catching you in your dishonesty.

Mistake # 2 - Frank Itemizes His $4000 Gambling Loss and Cheats Himself Out of the $5,950 Standard Deduction

Frank carefully records his losses at the Bellagio in a small notebook he keeps in his pocket. At the end of the weekend, he calculates a $4000 loss. When tax time rolls around, Frank itemizes this $4000 loss and feels like a tax-savvy gambling superstar. Unfortunately, the $4000 is Frank's only itemized deduction for the year and he's actually cheated himself out of a significant chunk of money. If Frank had bothered to do some research, he would have known that the standard deduction in 2012 is $5950. By itemizing only his $4000 loss at the Bellagio, Frank cheated himself out of an additional $1950 deduction.

The Moral of the Story

You can itemize gambling losses on your tax forms in order to recoup some of your lost money, but always find out what the standard deduction is first. You will only come out ahead if your itemized deductions add up to more than the standard deduction.

Mistake # 3 - George Itemizes His Gambling Losses, Which Are Greater Than His Winnings, and Gets in Trouble

After examining the pocketful of ATM receipts he accumulated while at the Bellagio, George realizes that although he won $200, he lost a total of $800. When tax time rolls around, George reports the $800 loss under the miscellaneous deductions section on Schedule A. He also reports his $200 winnings on Line 21 of his 1040. Unfortunately, George does not realize that deducted gambling losses cannot legally exceed gains. He gets audited and fined for failing to comply with this IRS regulation. It is perfectly acceptable to deduct your gambling losses, but you must also report your winnings. On top of that, your claimed losses may not exceed your stated winnings. George can legally claimed a $200 loss because he won $200, but he cannot legally claim an $800 loss in this scenario.

Mistake # 4 - George Fails to Document His Gambling Activities in an IRS-Approved Fashion

George is notified by the IRS that he is being audited and needs to provide legal documentation of the wins and losses he accumulated at the Bellagio. He digs through his suitcase, reassembles his collection of ATM and players card receipts, and submits these slips of paper to the IRS in a manila envelope. IRS officials reject his envelope, stating that this piecemeal form of documentation is unacceptable.

Conclusions

It is wise to track your casino expenditures, but saved receipts are not enough in the case of an IRS audit. Wins and losses should be logged in a notebook which includes the location, date, and amount of money won or lost. Game stubs are also acceptable documentation, but ATM and players club receipts are not.

All Americans must report gambling winnings to the IRS, regardless of what state or country they are in when they win. Gambling proprietors are required by law to report guest winnings that exceed certain predetermined amounts to the IRS. If you don't report your winnings and are audited, you could get in trouble.

Citizens are permitted to claim gambling losses on the miscellaneous deductions section in Schedule A, but losses may not exceed winnings. If you're thinking about itemizing gambling losses on your taxes, experiment with different deduction scenarios to see which will give you the biggest benefit.

Finally, keep track of your wins and losses in a detailed notebook. If you do get audited, IRS officials will only accept certain forms of financial documentation.

What Else Might Interest You:

COMMENTS:

By loading and joining the Disqus comments service below, you agree to their privacy policy.