If you gamble, be sure you understand the tax consequences. Both 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. The value of complimentary goodies (“comps”) provided by gambling establishments must also be included in taxable income as winnings.
Gambling losses are a miscellaneous itemized deduction and are limited to the amount of gambling winnings claimed on Form 1040, line 21, Other Income. A gambling loss deduction is a virtually automatic audit. Without your detained diary of all gambling activity, your deduction will be denied as a matter of routine. While the IRS does not have a gambling losses tax, it does allow for you to deduct gambling losses on your tax return in the form of a miscellaneous deduction. To deduct your losses from gambling, you will need to: Claim your gambling losses on Form 1040, Schedule A as Other Miscellaneous Deduction (line 28) that is not subject to the 2% limit.
Winnings are subject to your regular federal income tax rate. You might pay a lower rate on gambling winnings this year because of rate reductions under the TCJA.
Amounts you win may be reported to you on IRS Form W-2G (“Certain Gambling Winnings”). In some cases, federal income tax may be withheld, too. Anytime a Form W-2G is issued, the IRS gets a copy. So if you’ve received such a form, remember that the IRS will expect to see the winnings on your tax return.
Can I Write Off My Gambling Losses In 2018 Tax
Losses and tax deductions
You can write off gambling losses as a miscellaneous itemized deduction. While miscellaneous deductions subject to the 2% of adjusted gross income floor are not allowed for 2018 through 2025 under the TCJA, the deduction for gambling losses isn’t subject to that floor. So gambling losses are still deductible.
But the TCJA’s near doubling of 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) 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.
Also be aware that the deduction for gambling losses is limited to your winnings for the year, and any excess losses cannot be carried forward to future years. Also, out-of-pocket expenses for transportation, meals, lodging and so forth can’t be deducted 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.
© 2018
There are laws require that you declare your winnings in games including gambling as part of your income. But what about the losses? How do you account for the losses you made in gambling when it comes to tax filing?
Can I Deduct My Gambling Losses In 2018
It wouldn’t be fair to be taxed for the winnings and not account for the losses. Gambling after all is like running a business but with considerably lower chances for success. It’s easier making money by investing in a business compared to spending money on slots, dice, poker, or baccarat.
Based on data from H2 Gambling Capital, as reported on The Economist, global gambling losses in 2016 amounted to $385 billion with Australia topping the list of countries with the highest losses. By the way, loss here refers to the losses of players or the gains of gambling operators.
Source: The Economist, citing data from H2 Gambling Capital (website screenshot, fair use)
Tax Significance of Casinos, Online Casinos in Particular
It’s worth discussing the idea of tax on casino winnings mainly because online gambling is something common nowadays. Based on numbers from Statista, the online gaming market will have doubled in 2018 from its figure in 2009. The forecast is that it will become a $51.96 industry by 2018. A 2016 survey conducted by Nielsen Scarborough found that nearly 83 million Americans went to a casino in the past 12 months. That’s a truly massive number representing gamblers in the US alone. However, it is expected that this number of gamblers who visit physical casinos is bound to shrink over time as more prefer to play at online casinos.
Online casinos provide convenience any gambler would surely appreciate. It allows playing without the limitations of location and time. It is a major advantage for modern gambling. Some may doubt its reliability, questioning the fairness of the games being offered, but with the help of systems like random number generation and provably fair testing, players are assured that the games they play are not being manipulated. There are companies or institutions that provide certifications for random number generation to vouch for the reliability of online casinos.
The games on online casinos have also been standardized to establish credibility. Most online casinos nowadays rent or buy their software from renowned gaming service providers like Playtech, Microgaming, Realtime Gaming, Amaya, Softswiss, and International Game Technology. The use of games from this well-known companies makes it easier for players to trust casinos as compared to offering completely new in-house developed games.
Moreover, online casinos have invested time, money, and effort in improving the looks and usability of their websites. Online casinos now look indubitably better than how they looked in the past. They also employ better technologies to ensure a smoother playing experience. Flash has slowly been abandoned in favor of HTML5. At present, it is estimated that only around 4.6% of all websites are still using Flash. The same dwindling numbers can be observed when it comes to Flash use in online casinos.
Online casinos have also been designed to be accessible across multiple devices, from desktops to laptops and mobiles including tablet computers and smartphones. Online gambling operators have made sure that their online casinos are easily accessible using mobile devices, which is obviously an acknowledgment of how big the number of mobile internet gamblers is. As of February 2017, it was estimated that mobile internet access (not including access through tablet computers) accounted for 49.73% of the total page views across different parts of the world.
It’s not surprising that online casinos put emphasis on improving their looks, usability, accessibility, overall performance, and distinctiveness. They seek to provide a better casino experience that lets players enjoy quality games, snappy performance, reliability, intuitiveness, and the assurance that they will be paid of their winnings. 888 Casino, for example, has recently introduced a brand new sleek website design that makes it a one of a kind casino online.
Online gambling has come a long way and is being patronized by a growing number of people worldwide. While problem gambling is still the top issue associated with it, many are now recognizing that taxation of winnings is also an important issue to raise. After all, online casino winnings are still earnings worth subjecting to taxation. That’s why it’s worth discussing the tax implications of online casino winnings as well as the corresponding losses.
Deductible to a certain extent
The good news is that your gambling losses are actually deductible from your taxable income. Regardless of where you won and lost, be it in a traditional brick and mortar casino or in an online casino, you can deduct the losses you made from your taxable income. It does not matter if you gambled at a traditional brick and mortar casino where you made successive wins or you lost money at a dubious online casino. Your winnings and losses are supposed to be accounted for based on tax laws and regulations.
The main idea here is that you can subtract your gambling losses from the amount you won. Of course, you can’t just directly deduct the amount of your losses from your tax due. It’s similar to how you compute taxes for your business income. Your expenses and losses are deducted from your gross income first before multiplying the applicable tax rate to come up with the due amount of tax. The winnings are comparable to the gross income (in business) while the losses are comparable to the expenses and the actual losses of a business.
It’s important to remember, though, that this deduction can only be allowed if you are qualified for itemized deductions. You need a detailed listing of your winnings and losses to come up with the net amount that will be subjected to the tax rate. These details are to be listed under Other Income and Other Miscellaneous Deductions sections of Form 1040. If you opt for the standard deduction, your gambling or casino losses will no longer be subtracted from your total taxable earnings.
Source: IRS
Itemized deduction vs standard deduction
Taxpayers automatically qualify for standard deduction except when the itemized deductions they claim are greater than the standard deduction. Tax authorities are responsible for deciding if you qualify for standard or itemized deduction. You will not be compelled to choose either standard or itemized deduction, though. If you find standardized deduction more convenient, you will not be forced to choose itemized deduction even if you qualify for it. Around a third of the taxpayers in the United States use itemized deduction.
Naturally, you will have to choose the deduction scheme that is more advantageous for you, the one that yields the lower tax due. You may want to do calculations, which shouldn’t be difficult now since there are many tax computation tools online. Just do a search using the phrase “tax calculator” and Google should be able to show you a number of online tax tools to help you get a good estimate of the tax you should be paying.
Bets are not expenses
Another important detail to remember here is that bets cannot be deducted as expenses. Gambling is not like running a business wherein you put out money for the acquisition of something (cost of goods sold) to be sold later on. In business, the cost of goods sold is deducted from the gross revenues, thereby reducing the amount (net income) that will be subjected to the appropriate income tax rate. This concept is not comparable to the bets placed when gambling.
Bets are personal expenses that cannot be deducted from the taxable income. Only the amounts for gambling winnings and losses are used for the computation of the net amount that will be added to your other income figures to come up with the final taxable income amount that will be subjected to the tax rate.
Documentation requirements
If you want to account for your gambling losses to calculate your tax, the Internal Revenue Service (IRS) needs you to maintain a comprehensive listing of your winnings and losses. Gambling winnings, by the way, include winnings from raffles, lotteries, sports betting, poker games, horse racing, canine racing, and various casino games online or offline. Income derived from any form of gambling ideally should be included.
Your record of winnings and losses have to be clearly detailed. The listings should include information on the date and type of gambling involved, the name and address of the establishment where you gambled, and the exact amount you won or lost. You will also be asked to list the names of the people you played with.
Moreover, you need to have supporting documents for the gambling winnings and losses you have in your record. These supporting documents include wagering tickets, form W-2G, form 5754, cancelled checks or credit records, and official receipts from the gambling establishment. You will be required to submit original documents.
Source: IRS
If your winnings and losses are from an online casino, you can ask for a win/loss statement from the online casino you played in. You may be required to submit other documents to verify the authenticity and accuracy of the details presented in the statement.
Limitations
Tax laws set a limit on the maximum amount that can be claimed as losses. Basically, you cannot claim losses that exceed your winnings. For instance, if you made accumulated winnings of $10,000, you cannot claim losses amounting to $10,001 or higher even if you actually lost more than you won. If you won $10,000 but your accumulated losses for a tax year amounting to $30,000, you cannot claim a net loss of $20,000. You cannot end up recording a negative number (net losses from gambling) that can then be deducted from your other taxable income. If this were to be allowed, it’s would be like the government somewhat subsidizing the gambling activities of taxpayers.
In conclusion
It’s important to emphasize that you cannot simply claim a net amount of winnings or losses. You need to have detailed records with all the information mentioned earlier. Gambling losses can help lower your tax due but it’s unlikely going to be by a significant amount unless your finances largely consist of gambling winnings and/or losses.
Image: Pixabay.com