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Taxes on Gambling and Sports Betting: What You Need to Know

Gambling, including sports betting, can be a ton of fun or quite depressing depending on whether you win or lose. 

Most people end up losing when gambling over longer periods of time. Even so, quite a few people still walk away as winners from time to time. 

But do you have to pay gambling taxes on your winnings?

Unfortunately, the Internal Revenue Service (IRS) says that your winnings are potentially subject to federal taxes. 

Gambling winnings are considered taxable income.

Thankfully, you can deduct certain expenses, as well.

The rules on what you owe depend on whether you’re a casual or professional gambler.

They also depend on the marginal income tax bracket you fall in. Here’s what you need to know.

You should note this information only relates to how gambling taxes work for federal income tax purposes. Each state has its own state tax system if it has one at all. 

Do You Have to Report Gambling Income?

Simply:

Yes.

If you win any money gambling, you should report it on your federal income tax return. 

It doesn’t matter whether you spent $20 for a scratch-off ticket and only won $5. You’re supposed to report all gambling income.

All income you earn from gambling is reported on Line 21 Other Income on IRS Form 1040 Schedule 1.

Important to track gambling income

It can be a nightmare to keep track of all of your gambling income.

It is required, though.

One easy way to do this is by starting a record of your gambling activity. 

  • You could start a spreadsheet on your computer or your phone.
  • Another option is a simple piece of paper where you record all of your winnings. 

Either way, you need to track this information. By doing so, you can properly report it on your federal income tax return.

Track overall "performance"

This can help your personal finances, too. You can use this information to see if you’re losing more money than you win. 

If you are and you get no real joy out of gambling, you can quit gambling. 

This information can help you see if you’re spending more than you can truly afford to spend. It is also a useful tool to think of other ways you’d rather spend that money such as a vacation.

What Gambling Expenses Are Deductible?

Whether you’re a professional gambler or a casual gambler, you can often deduct some gambling expenses. 

However, you must know which category you fall in.

Once you know, you can figure out exactly what expenses are deductible for you.

Casual Gamblers

A casual gambler is considered someone who does not gamble as a trade or business. Casual gamblers are only able to deduct wagers up to the amount of their winnings. 

This means gamblers who won $500 in a year but spent $2,000 in wagers would only be able to deduct $500.

Casual gamblers can only take this deduction if they itemize their deductions. If you take the standard deduction, you cannot take this deduction. 

This means any gambling winnings would be taxable. You would not be able to deduct any gambling losses at all if you don’t use itemized deductions.

You report your gambling losses on Line 16 Other Itemized Deductions on Form 1040, Schedule A Itemized Deductions on the 2018 tax year tax forms.

Professional Gamblers

A professional gambler is considered someone who gambles as part of a trade or business.

As such, your gambling income and expenses are reported on IRS Schedule C Profit or Loss From Business.

Professional gamblers are able to deduct more expenses from their gambling activities above and beyond wagers. 

They may be able to deduct transportation, lodging, meals and entertainment expenses and more as long as they are related to professional gambling activities. These are considered non-wagering expenses.

In the past, professional gamblers were able to deduct expenses beyond their gambling income to report a loss from gambling activities. Unfortunately, recent tax law changes mean this is no longer possible.

Starting in 2018, professional gamblers can only deduct gambling losses to the amount of their gambling winnings in a year. This means they cannot report a loss from gambling activities even if they really had one.

Keeping Records of Your Gambling Gains and Losses

You must keep impeccable records of your gambling winnings and losses.

It doesn’t matter whether you’re a casual or professional gambler.

You’re required to report all of your gambling winnings. This is true whether you keep great records or not. It’s much easier to do if you keep good records, though.

It is even more important to keep good records when it comes to claiming expenses. If you don’t keep accurate and detailed records, your gambling losses may be disallowed.

But what exactly qualifies as detailed records? The IRS has some guidelines to help you figure this out.

In particular, you need to keep records of the following information:

  • The date and type of your specific wager or wagering activity
  • The name and address or location of the gambling establishment
  • The names of other persons present with you at the gambling establishment
  • The amount you won or lost

In addition, the IRS also has recordkeeping suggestions for certain gambling activities.

These aren’t all-inclusive, but give you an idea of what records you should keep and include:

  • Keno - Copies of keno tickets you purchased that were validated, copies of casino credit records and casino check cashing records
  • Slot machines - Machine number and all winnings by date and time the machine was played
  • Table games (blackjack, poker, craps, roulette, etc) - Table number you were playing at, casino credit card data that indicates whether the credit was issued in the pit or at the cashier’s cage
  • Bingo - Number of games played, cost of tickets purchased, amounts collected on winning tickets and receipts from the casino, parlor, etc
  • Racing (horses, dogs, etc) - Record of races, amounts wagered, amounts collected on winning tickets, amounts lost on losing tickets, unredeemed tickets and payment records from the racetrack 
  • Lotteries - A record of ticket purchases, dates, winnings, losses, unredeemed tickets, payment slips and winnings statements

Gambling Income Reporting and Withholding

In certain cases, a gambling establishment may report your winnings. If taxes are withheld, they will also report the taxes withheld to the IRS.

To do this, the establishment will issue IRS Form W-2G, Certain Gambling Winnings. 

According to the form’s instructions, the payer of gambling winnings must issue this form to you if you receive:

  • $1,200 or more in gambling winnings from bingo or slot machines
  • $1,500 or more in winnings (reduced by the wager) for keno
  • More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament
  • $600 or more in gambling winnings (except winnings from bingo, keno, slot machines and poker tournaments) and the payout is at least 300 times the amount of the wager
  • Any other gambling winnings subject to federal income tax withholding

In certain cases, federal income taxes will be withheld from your gambling winnings. The withholding rules differ depending on the type of gambling.

The amount of federal income tax withheld will be shown on your IRS Form W-2G. The standard withholding rate is 24% when federal income tax must be withheld.

Look:

Just because this amount is withheld does not mean this is the amount you pay in taxes. 

If you owe less in taxes, the difference will be refunded to you when you file your tax return. 

If you owe more in taxes, you will have to either make an estimated tax payment or pay the amount you owe when you file your tax return.

Consult a Tax Professional

Paying gambling taxes is never fun.

At least you now understand how paying taxes on gambling winnings and losses works in a general sense.

The good news is most people that itemize deductions are only paying taxes when they win more than they lose from gambling. 

Unfortunately, those that take the standard deduction are generally stuck paying taxes on winnings without deducting their wagers.

To get advice about your specific situation, contact your tax professional. 

Your tax professional can advise you whether your recordkeeping is sufficient to meet the IRS standards. They can also help you plan to reduce the total amount of taxes owed based on the current tax law.