If total gambling losses for the year equal or exceed total winnings, common sense might lead you to believe that the two would cancel each other, without any tax consequence. That might not necessarily be the case, however.
Let’s start with your gambling winnings. All gambling winnings have to be included in your income. If you’ve won either by gambling or on a lottery, you should have received a Form W-2G. This W-2G shows the amount that you won. Assuming that you’re not a professional gambler, this amount, plus any other gambling winnings you received for the year (regardless of whether or not the winnings are documented with a W-2G), are reported on line 21 of IRS Form 1040. You may not use Form 1040A or 1040EZ. This rule is applicable regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form.
You can generally deduct gambling losses, but only up to the amount of your gambling winnings. And, unless you’re a professional gambler, gambling losses are claimed as an itemized deduction on Form 1040, Schedule A (as a miscellaneous deduction not subject to the 2% adjusted gross income limit). That is important, because many individuals find that the standard deduction amount that they are entitled to exceeds the total amount of itemized deductions that they are able to claim. If that’s the case, you won’t get a direct deduction for your gambling losses.
For example, assume that you file as single on your federal income tax return, and your only itemized deduction is a $2,000 gambling loss. If you qualify for a $5,950 standard deduction, it should be better to take the standard deduction. Your total tax due should be unaffected by your gambling losses, even though your taxable income is increased by your gambling winnings.
If you itemize your deductions on Schedule A, you’ll want to keep good records of all your gambling winnings and losses—this will likely be important if your losses are questioned by the IRS. Additionally, you should check with your state (and if the winnings occurred in another state, that state as well) to determine if you have any state tax obligations on the winnings.
Disclosures
The following information is reprinted with permission from Forefield, a division of Broadridge Financial Solutions, Inc. This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
