Tax Resources

Gambling Losses

Gambling losses are tax deductible, but to a certain extent. Gambling losses are more common than gambling winnings so each year many people claim their tax deductions from gambling losses. To deduct gambling losses, you must know the IRS gambling loss definition.

Can gambling be a tax deduction?

Yes, but only as much as the gambling winnings for the year.

Tax deduction limit of gambling losses

Gambling Losses

According to the IRS tax laws, you can deduct gambling losses to the extent of your gambling winnings for the year cumulatively. Your gambling losses that are tax deductible do not have to be related to the gambling winnings but the gambling losses and gains do have to be in the same year. Basically, you owe taxes to the IRS on the gambling winnings and the IRS has allowed you to net the gambling winnings and gambling losses and only pay taxes on the net gambling gain. 

How do I deduct gambling losses?

For individuals who are not professional gamblers, gambling losses are tax deductible as miscellaneous tax deduction which you must itemize. Gambling losses, however, are not subject to the 2% floor of adjusted gross income. You can use the IRS tax form 1040 Schedule A to itemize the gambling losses.

Professional gamblers can deduct gambling losses as business expenses. However, the same tax deduction on gambling losses limit applies. Professional gamblers will use the IRS tax form 1040 Schedule C or Schedule C-EZ to report the gambling losses. If you file IRS tax form 1040A or 1040EZ, you will not be able to claim tax deduction for your gambling losses.

Reporting gambling income on tax return

In order to deduct gambling losses, you must report gambling income on your tax return. The amount of gambling loss deduction cannot exceed the amount of gambling income. In case of an IRS audit, you should have sufficient proof of your gambling income and gambling losses.

Make sure you do not over state your gambling winnings in order to deduct more gambling losses. IRS Penalties for over deducting gambling losses are assessed.

Tax Questions