Tax Implications of Gambling: Deducting Losses from Winnings

When it comes to gambling, understanding the tax implications of wins and losses is crucial for accurate record-keeping and proper tax filing. This article will guide you through the steps to properly report your gambling activities on your taxes, ensuring compliance with the Internal Revenue Service (IRS) regulations.

Overview of Gambling Losses on Taxes

For tax purposes, you can report your gambling losses up to the amount of your gambling winnings. In your case, you won $20,842.00 and lost $26,836.73. Therefore, you can deduct losses but only up to the amount of your winnings. This means you can report $20,842.00 as your deductible gambling losses on your taxes.

It is essential to keep accurate records of both your wins and losses. The IRS may require documentation if you are audited. Proper record-keeping ensures that you comply with IRS regulations, including substantiating your gambling wins and losses.

The Changing Law

A recent law change requires you to break your gambling into 'sessions.' Each session must consist of only one game played in a single casino and cannot span longer than a day. You must compute your gain or loss for each session.

For any session with a positive gain, you must declare that gain as miscellaneous income. You cannot use losses from one session to offset gains from another session. Additionally, you can only deduct gambling losses if you itemize your deductions on Schedule A of Form 1040 or Form 1040-SR. Losses go on Schedule A under 'Other Itemized Deductions.'

Example Calculation

Let's break down the example provided:

You won $20,842.00. You lost $26,836.73.

According to the new law, you can only deduct losses up to the amount of your wins. Therefore, you can report $20,842.00 as your deductible gambling losses on your taxes. The remaining $5,994.73 is non-deductible.

Additional Resources

For more detailed information about the taxation of gambling income and losses, you can refer to the following resources:

Topic No. 419 Gambling Income and Losses Form 1040-Schedule A Instructions

Ensure you are following the latest IRS guidelines to avoid any potential issues with your tax filings. Accurate record-keeping and compliance with IRS regulations will help you navigate the complexities of gambling tax reporting effectively.