Gambling & Federal Taxes
Workers in the U.S. must file tax returns that account for all income earned during the year, including miscellaneous sources of income such as gambling winnings. If you won a large sum of money by gambling, the additional income may put you in a higher tax bracket. The Internal Revenue Service (IRS) offers a tax deduction for certain gambling losses, which can mitigate the costliness of gambling.
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Taxes on Gambling Winnings
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The IRS considers all money you win from gambling to be taxable income. A wide range of activities can result in gambling winnings, including playing the lottery; casino games like blackjack, poker, slot machines and craps; raffles; and betting on horse races or dog races. Non-cash prize winnings such as cars, real estate and vacations are also taxable up to their fair market value -- the amount you would have had to pay to buy it on the open market.
Deduction for Gambling Losses
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You may deduct the amount of your gambling losses up to the amount of your gambling winnings on your tax return. For example, if you buy $300 worth of scratch tickets in the course of the year and you win $200, you can deduct $200 on your tax return. This effectively eliminates owing any tax on winnings that do not exceed your losses. The tax deduction for gambling losses is an "itemized" deduction; you must decide whether to use the sum of all of your itemized tax deductions or a standard deduction when you file your tax return. The IRS says that the standard deduction for 2010 tax returns is $5,700 for single taxpayers and $11,400 for married taxpayers filing jointly.
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Records
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You must keep accurate records of all of your gambling activities so you can report winnings and losses. The IRS states that taxpayers should keep a gambling diary that includes information such as the dates and types of all wagering activities, names of gaming establishments, records of lottery ticket purchases and statements of winnings or payment slips.
Considerations
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You must include the full amount of your gambling winnings on your tax return, regardless of your losses. You cannot subtract your gambling losses from your winnings when reporting gambling income. For instance, if you spend $200 gambling and won $500, you cannot simply report $300 of gambling income. Instead, you must report the full $500 in winnings and then claim the $200 in losses as an itemized deduction.
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