If you're a gambler or if you intend to start gambling in 2016, then one thing you need to keep in mind is that whenever you make a loss on your gambles, you can claim a deduction on your taxes due! Johnson, Johnson & Associates, Inc in Yeadon, PA has been on the trails of tax laws and regulations for more than a decade now and has identified a few things you need to know about gambling losses taxes.
The single, most important rule in deducting gambling losses taxes is that you can only deduct gambling losses for the year to the extent of your gambling winnings for the year. What this means is that if you only won $10,000 in 2015, then you can only deduct up to $10,000 – no matter how much you lost. This limitation applies to all your gambling efforts for the entire year. So, if you play the lottery, slots, poker, horses and so forth, then you should add up all the profits you're making from all of them. Also, the limitation applies to both professional and amateur gamblers.
Johnson, Johnson & Associates, Inc in Yeadon, PA call it the losses cannot exceed winnings limitation.
After applying the above limitation rule, the allowable gambling loss deductions for non-professional gamblers are claimed on Line 28 of Schedule A (Itemized deductions). Those who don't itemize the losses cannot get a write-off. Moreover, amateur gamblers can only claim deductions on actual wagering losses. Other expenses incurred in the gambling process such as transportation, meals, lodging, and others cannot be written off.
If you’re an amateur gambler, you’re advised to report the full amount of your winnings as miscellaneous income on Line 21 on Page 1 of form 1040. It’s a complex process to say the least because even if your winnings exceed your losses, you cannot just report the net winnings on Line 21. Instead, you’re required to report your gross winnings on Line 21 and then the losses on Line 28 of Schedule A. again, remember to itemize. If you feel that this would be a tiring process or if you need further clarification, then you need to contact Johnson, Johnson & Associates, Inc in Yeadon, PA.
If you’re a professional gambler, there are even stricter regulations that you need to abide by. Over the recent years, there have been a lot of court decisions aimed at defining who should be classified as a professional gambler. Today, a person can only be termed a professional gambler if they devote a substantial amount of time to gambling on a regular basis. Additional, a person must depend on gambling winnings as a meaningful source of income for them to be classified as professional gamblers.
If you’re a professional gambler or want to be classed as one, then it would also be advisable to run your gambling activities in an organized manner, more like running a business. For this reason, keeping detailed records of wins and losses and developing and evaluating strategies may help. Johnson, Johnson & Associates, Inc in Yeadon, PA can help.
For purposes of taxation, all persons who have claimed the right to be called professional gamblers need to report their gross winnings as income on Line 1 of Schedule C of form 1040. Your losses, up to the winning amount, and all allowable out-of-pocket gambling related expenses such as transportation meals, and out of town lodging must also be reported as business expenses on Schedule C.
Also, keep in mind that professional gambler's out-of-pocket expenses are deductible in full on Schedule C without regards to winnings. This only means that professional gamblers don't have to combine out-of-pocket costs with gambling losses when applying for deductions.
For those with a bit of tax knowledge, you will know by now that reporting your winnings and losses on Schedule C means you will also be faced with the dreaded self-employment tax. This usually makes professional gambling much more expensive compared to amateur gambling. Speak with tax experts from Johnson, Johnson & Associates, Inc in Yeadon, PA to learn more.
When keeping records for purposes of taxation, gamblers (both professional and amateur) need to pay particular attention to the following records;
At legitimate gambling establishments, you will usually be presented with a W-2 form whenever you earn $600 or more. Typically, the facility keeps a copy of the W-2 which it hands over to the IRS. So, ensure that whatever you report on Line 21 of form 1040 or Line of Schedule C for professional gamblers is correct.
Contact the reliable tax professionals at Johnson, Johnson & Associates, Inc in Yeadon, PA for any inquiries.
Johnson, Johnson & Associates, Inc.