Americans can expect that their 2018 taxes will see itemized deductions eliminated or scaled back. Deductions for miscellaneous expenses, subject to the floor of 2% of AGI (Adjusted Gross Income) is included in this assessment. If you play at the online casino or at any other Vegas casino venue you can continue to deduct your gambling losses up to the amount of winnings.
The Rules
To start, you need to remember that you can only deduct losses up to the amount of your winnings. That means that any excess loss can’t offset other income. For instance, if you have annual gambling winnings of $20,000 and losses of $5000 you can deduct the $5000 but you’ll be taxed on the $15,000 difference. Conversely, if you have no winnings but $5000 in losses, you won’t get any deduction.
Don’t claim a deduction unless you can provide proof to the IRS of such losses if your tax records are audited. The IRS will want to see:
- The date of each bet or betting activity
- The type of gambling activity
- The name of the gambling establishment
- The address of the gambling establishment
- The names of any persons who accompanied you in the gambling establishment when you won
- The amount of your loss or win (record the number of the table and hold on to statements that show the casino credits
“Gambling losses” are defined as any expenses that are incurred as part of a gambling event. For instance, the costs of your travel back and forth from a track or a casino could be deductible. You must report your winnings and losses separately, as opposed to reporting a net amount.
Be smart. Don’t go around collecting random ticket stubs of race track losers and submit them as your losses – the IRS may not harass you for exact records but they know that it’s not likely that you placed a bunch of $2 bets on the losing horses at the same race.
Professionals
According to J.K. Lasser's Your Income Tax, "A gambler is considered to be engaged in the business of gambling if he or she gambles full time to earn a livelihood and not merely as a hobby"
If you’re a professional gambler, it’s your business. Therefore, you can deduct an annual loss. You may not deduct non-wagering expenses (such as travel).
Professional gamblers report their gambling income and related expenses as self-employed income. This income is subject to both federal income tax and the self-employment tax. This is because professional gamblers are viewed, for tax purposes, as self-employed. The gambling income is also subject to state income tax in states where taxes on gambling income is collected.
Reporting
You need to report your income when it reaches the following threshold:
- $600 or more for horse track gambling if it reaches 300x your bet
- $1,200 or more at a bingo game or at a slot machine
- $5,000 or more in poker tournament winnings
- $1,500 or more in keno winnings
If you’re going to deduct these winnings from your taxes, you must have given your social security number to the gambling operator and you must have filled out an IRS Form W2-G where the full amount that you won was reported. Generally, the casino operator will take 25 percent off the top and will give that money to the IRS before you collect your winnings. If at the end of the tax year, you are eligible to receive some or all of that 25% back, you will receive it as part of your tax refund.
When gambling winnings from sweepstakes, wagering pools or lotteries are more than $5000 (minus the wagers) the winnings are similarly subject to withholding for federal income tax at a rate of 25%.
If you win at roulette, baccarat, blackjack or craps you’re not required to fill out a W2-G form. That doesn’t mean that you are exempt from paying taxes on those winnings – you must still report the wins. However, those table game wins don’t need to be reported on a W2-G form.
In summary, wins from the following gambling activities are taxable:
- Casino Games
- Slot Machines
- Lotteries
- Horse or Dog Races
- Off-track Betting
- Sweepstakes
- Raffles
- Keno
- Poker Tournaments
- Betting Pools
- Gameshows
- Bingo
If you win a non-cash prize, such as a trip or a car, you will be responsible for paying taxes on the fair market value of each prize.
Smaller Winnings
Regardless of the amount of your wins, you are obligated by law to report that income. You must also report prize money or awards that you won during the year. Any income that you receive from such sources is added to your employment income and, together, it is calculated in determining your total income for the year.
State Income Tax
State income taxes vary, depending on the state. Some state governments tax gambling income while others don’t. In addition, the rules and formulas for taxing gambling income differ from one state to the next. Some charge a percentage if you won over a certain amount while others tax all gambling income, regardless of the amount, according to a flat percentage of the payouts.
Ten states don’t collect taxes on gambling income. They are Washington, Delaware, South Dakota, Tennessee, Texas, Florida, New Hampshire, Pennsylvania, California, and Wyoming. Feel like moving?
