How to Get the Tax Credit for Gambling Losses

If you intend to deduct gambling losses, be prepared to keep records.

You have to pay taxes on your gambling winnings, so it only seems equitable that you should be able to claim a deduction for your losses. The Internal Revenue Service allows you to do this. The deduction won't neutralize the effects of a streak of bad luck, though, because the losses you claim cannot exceed your winnings, so at best the deduction reduces the bite the government takes from those winnings. Moreover, if you plan to claim the deduction, you must keep careful records whenever you gamble--something few gamblers do.

Instructions

1. Keep a diary of your gambling activity. According to the IRS, the diary should contain the date of each wager, its type, the name of the gambling establishment, the names of any other persons present and the amounts of your winnings and losses. Besides this, the IRS recommends keeping other records to support your claims, depending on the type of gambling.

2. Save lottery, keno, bingo and racing tickets. If you use slot machines, record the number of the machine and the time of day you start and finish your sessions, and keep a record of your winnings. If you play table games, write down the number of each table played and save your receipts whenever you buy more chips. The IRS does not always require such detailed record-keeping but may if a dispute arises concerning your claims.

3. Report your gambling winnings on Form 1040, line 21. You can usually prove your winnings through Form W-G2, supplied to you by the establishment paying the winnings or by filling out and filing Form 5754. In addition, the IRS accepts canceled checks and credit records as proofs of withdrawal as well as certain other evidence.

4. Enter your gambling losses on Schedule A (Form 1040), line 28. The amount must be less than or equal to the amount your reported winnings.

Tips & Warnings

• If you win $8,000 in a calendar year but lose $10,000, you can only claim a deduction of $8,000. The extra $2,000 cannot be claimed as a deduction for any other reason.

• You must aways claim gambling winnings and pay taxes on them, but you can only claim losses if you itemize your deductions.

References

• IRS. gov: Publication 529--Main Content
• Lawyers: Tax Deduction for Gambling or Wagering Losses