Reporting Gambling Income and Losses to the IRS
The Tax Consequences of Being a Casual Gambler
Gambling — whether it’s at the racetracks, the casino, or the lottery — is a source of entertainment for millions of people. It is also a source of income, whether you win the Powerball jackpot or a charity raffle.
This article applies only to gambling winnings and losses for causal gamblers. If you consider yourself a professional gambler, you must file a Schedule C (Form 1040) for your gambling business, and it’s recommended that you consult a tax professional to see if you qualify as such.
In case you’re thinking of calling yourself a professional to try and increase your tax deductions, keep in mind that the IRS has strict rules in place for who qualifies as a professional gambler. Additionally, you will have to pay self-employment tax on your winnings that casual gamblers are not subject to.
What Gambling Winnings Are Classified as Income?
You are required to report any winnings from lotteries, raffles, horse races, or casino gambling as income. It doesn't matter whether your winnings are in the form of cash or prizes. For example, if you win a car in a charity raffle, you are required to report the fair market value of that car as income.
If you win a large amount at once, you will receive a Form W-2G (Certain Gambling Winnings) from the organization/retailer that is paying you the winnings. The W-2G looks similar to the W2 you receive yearly from your employer. And like the W-2, all of the information on Form W-2G is reported directly to the IRS.
Note that you will only receive a Form W-2G if your winnings exceed certain thresholds or if your winnings are subject to Federal withholding tax. According to the IRS, you must report gambling winnings on Form W-2G if any of the following apply:
- The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine
- The winnings (reduced by the wager) are $1,500 or more from a keno game
- The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament
- The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are: $600 or more AND at least 300 times the amount of the wager
- The winnings are subject to Federal income tax withholding (either regular gambling withholding or backup withholding)
It’s your responsibility to keep accurate records of all your gambling income. You should even be tracking and tallying every $1 scratch-off ticket win. Remember, a payer is only required to issue you Form W-2G if you receive certain gambling winnings. But regardless of whether the payer has to issue a W-2G and report directly to the IRS, your winnings are still considered taxable income and you must include them on your Federal tax return as “Other Income.” The bottom line? Keep your receipts from every win.
Gambling winnings are reported on Line 21 of Form 1040. If you have gambling winnings, you cannot file Form 1040A or Form 1040EZ. You have to report all of your gambling winnings on Form 1040 (Line 21), whether or not a Form W-2G has been issued to you. Do not deduct your gambling losses or wagers from the amount that you report on your 1040. For example, if you buy a $10 raffle ticket and win a $500 prize, you will report $500 on Line 21 (Form 1040), not $490.
For more information about the rules for gambling income, please refer to IRS Publication 525, Taxable and Nontaxable Income.
What About Gambling Losses and Wagers? Are They Tax-Deductible?
Yes, you can deduct your gambling losses and wagers.
Gambling losses can be reported under “Other Miscellaneous Deductions” on Schedule A (Itemized Deductions) of Form 1040. Note that you can only deduct your gambling losses if you itemize deductions. Additionally, you are only permitted to deduct losses up to the amount of winnings you report as income.
Gambling losses are reported on Line 28 of Schedule A. Unlike other itemized deductions, gambling losses are not subject to the 2% AGI (adjusted gross income) limit. This means you can deduct the entire loss, not just the portion that exceeds 2% of your AGI.
Remember that you’ll need to be able to prove every gambling loss or wager that you deduct. Keep your losing tickets for evidence, and track your losses in the same manner you track your winnings.
For more information about miscellaneous deductions, please see IRS Publication 529, Miscellaneous Deductions.