If you gamble, be sure you understand the tax consequences. Both gambling wins and losses can affect your income tax bill. And changes under the Tax Cuts and Jobs Act (TCJA) could also have an impact.
Wins and Taxable Income
You must report 100% of your gambling winnings as taxable income. You must also include the value of complimentary goodies (“comps”) gambling establishments provide you in taxable income as winnings.
Winnings are subject to your regular federal income tax rate. But you might pay a lower rate on gambling winnings this year because of rate reductions under the TCJA.
You may have amounts you win reported to you on IRS Form W-2G (“Certain Gambling Winnings”). In some cases, federal income tax may be withheld, too. Anytime a gambling establishment issues a Form W-2G, the IRS gets a copy. So if you receive such a form, remember that the IRS will expect to see the winnings on your tax return.
Losses and Tax Deductions
You can write off gambling losses as a miscellaneous itemized deduction. Miscellaneous deductions subject to the 2% of adjusted gross income floor are not allowed for 2018 through 2025 under the TCJA. But the deduction for gambling losses isn’t subject to that floor. So gambling losses are still deductible.
However, the TCJA nearly doubled the standard deduction for 2018 (to $24,000 for married couples filing jointly, $18,000 for heads of households and $12,000 for singles and separate filers). This means that, even if you typically itemized deductions in the past, you may no longer benefit from itemizing. Itemizing saves tax only when total itemized deductions exceed the applicable standard deduction.
Be aware that the deduction for gambling losses is limited to your winnings for the year. Any excess losses cannot be carried forward to future years. Also, you can’t deduct out-of-pocket expenses for transportation, meals, lodging and so forth unless you qualify as a gambling professional.
And, for 2018 through 2025, the TCJA modifies the limit on gambling losses for professional gamblers so that all deductions for expenses incurred in carrying out gambling activities, not just losses, are limited to the extent of gambling winnings.
Tracking your Activities
To claim a deduction for gambling losses, you must adequately document them, including:
1. The date and type of gambling activity.
2. The name and address or location of the gambling establishment.
3. The names of other persons (if any) present with you at the gambling establishment. (Obviously, this is not possible when the gambling occurs at a public venue such as a casino, race track, or bingo parlor.)
4. The amount won or lost.
You can document income and losses from gambling on table games by recording the number of the table you played and keeping statements showing casino credit issued to you. For lotteries, you can use winning statements and unredeemed tickets as documentation.
Please contact us if you have questions or want more information about the tax treatment of gambling wins and losses.