Tax Laws Regarding Gambling Winnings & Losses
As tax can be a confusing minefield, here are all the important tax laws you need to be aware of.
The Most Import Thing
The most important tax limitation to remember is that you can only deduct gambling losses to the extent of your winnings over the course of a year. This does count for the majority of gambling types, playing the lottery, pokies, sports betting, horse racing to name but a few, and is applicable for any type of mobile casino, and online or real life casinos. So what exactly does this mean?
Well imagine if you won $2000 during a year, but you lost a total of $2500 as quite often happens. You can deduct the $2000 losses from your initial winnings, but you will not be able to use the left over $500 to put towards another years taxes, effectively you will lose the $500.
Tax Rules For The Amateur Gambler
There are two main things you need to be aware of, if gambling is just a fun hobby; firstly that your tax will be claimed under Line 28 of Schedule A (Itemised Deductions). I now that is a lot of legal jargon, so here is a simple explanation: Itemised Deductions are any small amounts of winnings and losses you make during the course of a year. As this is only a hobby, these may not be a frequent as those of a professional gambler, so these are classed as 'Itemised'.
The main thing that you will need to make sure to do is keep a record of all your gambling transactions. This could be anything from receipts, losses slips, casino letters, or any proof you are given during your session. These then need to be kept and used as evidence when you complete your taxes. This should not include any expenses whilst you are gambling, travel, drinks, food etc. As you will be filling in an itemised tax form, if you don't have the records of the transactions, you will not get them written off meaning you could lose out.
Secondly, you need to be extra careful when declaring your winnings. This will be completed under Line 21 of form 1040 (the general tax declaration form). This is a separate section from Line 28 and again your winnings need to be clearly itemised here. One common mistake the people make is to only report the net winnings for a year, which can lead to you over paying on your taxes. To avoid this, be honest and keep every win written down.
Professional Gamblers and Tax
There have been many legal debates over the past few years as to what defines someone as a professional gambler. In general this is someone who spends large periods of time at casinos and has turned gambling into a career. Anyone who depends on their winnings as a meaningful form of income must therefore conduct their gambling wins and losses as they would a business, keeping records, understanding the laws surrounding their chosen form and become an expert in the declaration of taxes; sounds like a lot to take in, but the winnings can be huge.
If you are starting your career as a professional gambler then you will need to make sure that you state this when sending through your tax return. You will also need to complete a different section on the tax return, Schedule C of form 1040 - Profit or Loss from Business. Unlike amateur gamblers, as you are declaring gambling as your business, you can declare allowable out-of-pocket expenses, travel, food and hotels can all be added in here. All business expenses can be fully deducted against your winnings in section C.
You will also need to keep detailed records of all your transactions and list them, with evidence here and complete your winnings and losses as previously stated. Be aware though that you cannot combine your expenses and losses to try to get further reductions.
In conclusion, the main points to remember is that you cannot deduct more losses than you have in winnings, you need to keep track of every single transaction and declare it as such. By completing your tax in this way you will be guaranteed to be taxed in the correct manner.