Are Gambling Losses Tax Deductible?
Gambling loss limitations
The government allows gamblers to offset winnings with gambling losses, but only to the level of winnings. For instance, if a person wins $1000 at the race track, but bet a total of $4000 then this person can only declare a deduction for the amount of loss up to but not exceeding winnings. In this case, the taxpayer would only be able to declare $1000 of the loss as tax deductible. The allows a gambler to reduce gambling income, but not reduce other taxable income with high gambling losses.
Where to file
Gambling losses can be filed on Schedule A as part of a routine 1040 (note that Schedule A is for Itemized Deductions). Taxpayers who do not itemize are not eligible for declaring gambling losses as tax deductible. For professional gamblers or other high-rollers, the loss is not restricted to a percent of gross income like many itemized deductions. It just cannot exceed winnings.
The advantage to declaring losses on an annual government return is obvious. This exemption reduces taxable income and keeps more money in the taxpayer’s pockets. Because gambling is often illegal in many jurisdictions, many taxpayers fail to file a claim on losses.
Proof of gambling losses
Like any other activity, a taxpayer needs to keep accurate records to prove winnings and losses. Betting stubs or receipts as well as a gambling diary are useful tools to demonstrate loss if the government ever chooses to perform an audit. It is better by far for a taxpayer to over document a tax deductible claim than to hope a return is not audited.
Gambling losses are a legitimately tax deductible way to reduce income and lower a tax bill. Save receipts, document and declare. It is a simple process.