How to Use Gambling Losses as a Tax Deduction

You may use gambling losses as a tax deduction up to the amount of your gambling winnings within the same calendar year. In order to claim gambling losses, you must itemize your deductions on Schedule A and file your federal income tax return on Form 1040. You then would make two separate entries, with winnings on Form 1040 and losses on Schedule A.

Difficulty: Moderate

Instructions

Things You'll Need:

• IRS Form 1040
• Form W-2G, if applicable
• IRS Schedule A

1. Plan ahead by keeping an accurate gambling journal of your winnings and losses. Good records will reduce your tax bite if you have a large win.

2. In your journal, register the amount you won or lost, the date, the name and address or website address of the gambling establishment. Include the type of wager and be specific. For example, "Lost $10 on Rising Son in the 4th race at Hialeah."

3. Declare all of your gambling winnings on line 21 of IRS Form 1040. Include any winnings reported to you on Form W-2G, which is also supplied to the IRS by the gambling establishment that sends it to you.

4. Include any amount that was withheld for taxes by the gambling establishment in the total amount you enter for line 64, "Federal income tax withheld from Forms W-2 and 1099," on IRS Form 1040.

5. Verify your gambling losses with documents such as originals or copies of lottery and KENO tickets purchased, racing and other wagering tickets, credit card records, canceled checks, bank withdrawal records, records of casino slot machine numbers and table numbers where you gambled. Including any statements of winnings and payments made to you by gambling establishments.

6. Declare all of your gambling losses under "Other Miscellaneous Deductions" on line 27 of IRS Schedule A (Form 1040). This amount may not exceed your declared gambling winnings on line 21 of IRS Form 1040.

7. Use IRS Form 5754, "Statement by Person(s) Receiving Gambling Winnings," if the tax liability for your gambling winnings is shared by others.

Tips & Warnings

• Some activities that are widely considered to be gambling, such as stock market day trading or buying raffle tickets from a charity's fundraiser, fall under IRS rules not specifically related to gambling. For example, equity traders should read Schedule D instructions regarding deduction of investment losses. Information concerning charitable contributions is found in the Schedule A instructions.
• Under the IRS self-disclosure policy regarding gambling winnings and losses, you are responsible for declaring all gambling winnings as income on IRS Form 1040. You are not allowed to use just enough of your gambling winnings to cover your losses.