If you like to gamble, whether periodically just for fun or regularly as a way to supplement your income, you’ll want to know that there are different guidelines for amateurs and professionals. In addition, the IRS has issued updated guidelines pertaining to gambling winnings.
If you are an amateur gambler who only gambles periodically and you end up losing more money than you win, you do not get that extra amount back on your taxes. You are only allowed to deduct your gambling losses up to the amount that you won during the tax year. If your losses exceed your winnings, you can claim the extra amount as an itemized deduction on Schedule A of your 1040, but only if you itemize. If, however, you win more than you lose, you cannot simply subtract your losses from your winnings and report that number as your net gambling income. You must itemize, reporting all of your winnings as miscellaneous income on Form 1040 and your losses on Schedule A of Form 1040. If you win more than $600 at a gambling location, they should issue you a Form W-2G, which will also be sent to the IRS. Be sure that the amount on your W-2G matches the amount you list on your 1040.
Here’s where the new guidelines come in. The rule used to be that an amateur gambler had to report the amount of every single win, despite the fact that most people will probably only record their daily winnings and losses. Now the IRS allows gamblers to record net winnings and losses per gambling session. A casual gambler can then report the sum of all net winnings from those sessions on Form 1040.
If you are a professional gambler who spends a significant portion of time gambling and you depend on your winnings as a source of income, you must keep extremely detailed records of your wins and losses. Rather than listing winnings and losses as itemized deductions on Schedule A, you will need to report them as business income and expenses on Schedule C. By treating these numbers as business expenses, you will be able to deduct your losses from your winnings. However, professional gamblers who use Schedule C will be required to pay Self-Employment tax on their net “business” income.
Professional gamblers, unlike amateurs, are allowed to deduct transportation, lodging, and food expenses by using the normal rules for business expenses, which we discussed previously. These numbers are considered completely separate from gambling winnings or losses. Just as with amateur gamblers, though, a professional gamblers losses cannot exceed his winnings when tax time arrives.
Whether you are an amateur or professional, you will want to record the following details for every gambling session:
- The date
- The gambling facility address and phone number
- The type of gambling or wagering activity
- The total amount won OR the total amount lost
- The names or other people present, if you are with people you know
In addition, be sure to retain copies of any receipts or statements issued to you by the gambling facility. Detailed and accurate record-keeping is essential!
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