Maybe that big weekend in Vegas didn't turn out like you had hoped. Perhaps you like to play the ponies on a routine basis. It doesn't matter what particular game you prefer, if you lose more often than you win over the course of the year, you might be able to claim those losses on your income taxes.
But be careful, attempting to include gambling losses on your return comes with specific circumstances and requirements. Every financial situation is different and if you feel that you might qualify to claim gambling losses on your taxes, discussing the matter with your tax preparer is an important first step.
Report Your Winnings
This may preclude some of you from deciding to claim those losses as you'll need to report your winnings as taxable income first.
It's no secret that most taxpayers conveniently forget to include this money on their return, but any smart accountant will warn you to be careful about neglecting to declare. For those of you who are still reading up to this point, your losses can be considered as tax deductible up to the amount equal to the winnings you claim on the return.
Itemizing Instead
All taxpayers may choose to itemize their qualifying deductions for the tax year or take the exemption amount offered under the standard option. But in order to claim your losses on your income taxes, you must itemize your deductions on a schedule A. Taxpayers who are claiming the standard will not be allowed to include their losses on their return.
Itemizing means careful book-keeping is necessary. This is especially important if you plan to claim a substantial number of eligible deductions, as you may be facing an audit from the IRS. If that occurs, you'll want to have all of the proper paperwork to support your claims.
Book-keeping Requirements
While receipts and other related documents are important for itemizing your deductions, you'll need to keep specific types of records if you plan on deducting your gambling losses.
These records are related to the type of gambling in which you engaged, whether it's a lottery ticket, a raffle, sports betting, horse or dog racing, and of course, games in casinos or poker halls. Losses for these types of gambling activities are all eligible to be claimed.
But you'll also need to get your tax preparer certain information that details your gambling winnings and losses. Most of this information is easy to remember and submit to your accountant or tax preparer.
You'll need to provide the names and addresses of all the locations where you engaged in gambling activities. Be sure to include the date and form of gambling along with the individuals you gambled with during that time. Finally, you will need to include the amounts of your winnings and losses.
Additional Paperwork
Those details are just part of the documentation you'll need to supply to your accountant or tax preparer. There are other forms and paperwork such as a Form W-2G or 5754. Receipts, tickets, and checks or credit card records are also acceptable to support your claims for losses.
Wins and Losses
As we mentioned, you may only claim losses up to the limit of the amount of winnings you claim on your return. That means you need to have won money in order to include your losses as tax deductions.
This is because the government doesn't want to reward you for losing money on gambling, especially since gambling isn't legal in every state. Therefore, you need to report some earnings on profit from winning games of chance.
You might even consider this arrangement as a way for you to break even in the end. If you can only report losses after you report earnings on winning, you're basically just eliminating any taxes you would owe from those gains. Nothing more.
Like any other component of filing your taxes based on your income and expenses or losses incurred over the course of the year, it pays to find a tax preparer that understands how to report these complex financial matters on your tax return. This can help you avoid paying penalties and fees as a result of mistakes and late payments.
