Can You Write Gambling Losses Off
If you gamble, you may not feel like as much of a winner come tax season next year. Changes in the State of Oklahoma tax law a limiting how much you can write off as a 'loss.'
'I see this for Oklahoman's as like the gambling penalty,' said Eileen Robinson, the head accountant at Gardner's Tax Services Inc.
- This interview will help you determine how to claim your gambling winnings and/or losses. Information You'll Need. Your and your spouse's filing status. Amount of your gambling winnings and losses. Any information provided to you on a Form W-2G.
- That’s out of the question. Unless you are a professional gambler, you are only permitted to report your losses on Schedule A. Worse, since gambling losses are only allowable up to your gambling winnings, once you have net your losses for the day, you cannot deduct anything, unless you have a net profit for the day.
Gambling losses can offset gambling winnings if you itemize. However, they can not offset Prize winnings. As you had to wager nothing to get the $10k, this is a Prize and not Gambling therefore gambling losses can not be used to offset it. However, wagering losses cannot exceed gambling winnings. Any excess gambling losses over gambling winnings cannot be carried forward or carried back to offset gambling winnings from other tax years. This is a significant benefit for the professional gambler tax return. A few common professional gambling tax deductions include.
In previous years, you could write off your total gambling losses in your adjusted income which is what you can still do for federal taxes, but for Oklahoma state taxes, you can't do that anymore.
'For federal you have to show in the income on the 1040, your schedule 'A' is where you take your itemized deductions and that's where you right off your gambling losses,' Robinson said. 'In Oklahoma, they limited the amount of itemized deductions you can take, you can take all of your donations but it limits the rest of it to that 17,000.'
This means you'll have to pay income tax for the total amount of big jackpots.
In the past, if you lost money while gambling, then won, you could deduct those losses from your winnings then only pay the tax on the difference.
'Now when you win that money you're going to have to pay the taxes whether you out that money back into the machine or not,' Robinson said.
Something that Robinson says has been an unpleasant surprise for her clients this year.
'They're in shock, most of them didn't know and of course not until we got ready to do their taxes,' Robinson explains.
It may be too late to make the adjustment this year, but there are ways to prepare for the tax change next season.
'I'd say 5% of all their winnings needs to be set aside to send in' Robinson said. 'So lets say if you won something you need to make sure you set back enough to be able to pay the taxes for the state and try not to plug that into the machine.'
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Did you have gambling losses last year? If so, you may be entitled to a deduction. Here is what you need to know at tax return time.
The most important rule
The biggest single thing to know is that you can only deduct gambling losses for the year to the extent of your gambling winnings for the year. So if you won $2,500 gambling in 2014, the most you can deduct of your losses is $2,500 — no matter how much you lost. This limitation applies to the combined results from any and all types of gambling — playing the lottery, slots, poker, the horses, and all the rest. And the limitation applies to both amateur and professional gamblers.
After applying the losses-cannot-exceed-winnings limitation, the allowable gambling loss deduction for a person who is not a professional gambler is claimed on Line 28 of Schedule A (Itemized Deductions). If you don’t itemize, you get no write-off. Also, amateur gamblers can only deduct actual wagering losses. Other gambling-related expenses (transportation, meals, lodging, and so forth) cannot be written off.
An amateur gambler should report the full amount of his or her winnings as miscellaneous income on Line 21 on Page 1 of Form 1040. If your winnings exceed your losses, you cannot just report the net winnings on Line 21. Instead, report your gross winnings on Line 21 and your losses (up to the amount of your winnings) on Line 28 of Schedule A, assuming you itemize.
Over the years, quite a few court decisions have attempted to define what it takes to be a professional gambler. The bottom line is you must devote substantial time to gambling on a regular basis, and you must depend on gambling winnings as a meaningful source of income.
It also helps if you conduct your gambling activities in a businesslike fashion by keeping detailed records of wins and losses and developing and evaluating strategies.
If you can rightly claim professional gambler status, report your gross winnings as income on Line 1 of Schedule C of Form 1040 (Profit or Loss from Business). Report your losses (up to the amount of your winnings) and your allowable out-of-pocket gambling-related expenses (for transportation, 50% of out-of-town meal costs, out-of-town lodging, and so forth) as business expenses on Schedule C.
Note that a professional gambler’s allowable out-of-pocket expenses can be deducted in full on Schedule C without regard to the amount of winnings. In other words, you aren’t required to combine out-of-pocket expenses with gambling losses in applying the losses-cannot-exceed-winnings limitation.
Warning: The seemingly benign rule that a professional gambler’s winnings and losses belong on Schedule C can have a big negative impact in profitable years, because net Schedule C income gets hit with the dreaded self-employment tax. In some cases, this can make claiming professional gambler status more expensive than amateur status.
Form W-2G keeps winners honest
For most types of gambling at a legitimate gaming facility, you will usually be issued a Form W-2G (Certain Gambling Winnings) if you win $600 or more. The IRS gets a copy too, so you better make sure the gross gambling winnings reported on Line 21 of your Form 1040 (or on Line 1 of Schedule C if you are a professional) at least equal the sum of the amounts reported on any Forms W-2G you receive.
Record keeping basics
Whether you are an amateur or professional gambler, you must adequately document the amount of your losses in order to claim your rightful gambling loss deductions. According to the IRS, taxpayers must compile the following information in a log or similar record.
- The date and type of each wager or wagering activity.
- The name and location of the gambling establishment.
- The names of other persons (if any) present with you at the gambling establishment (obviously this requirement cannot be met at a public venue such as a casino or racetrack).
- The amount won or lost.
You can document winnings and losses from table games by recording the number of the table and keeping statements showing casino credit issued to you. See also IRS Publication 529 (Miscellaneous Deductions) at irs.gov.
Per-session record keeping is apparently OK
In theory, you are supposed to record each gambling win or loss — from each spin of the slot machine, each poker hand, and each horse race. Of course, nobody actually does that. Thankfully, the IRS relented a few years ago by saying that casual slot players can simply keep a record of the net win or net loss amount for each gambling session. The Tax Court appeared to endorse this per-session approach in a 2009 decision. The casual slot player should then report the sum total of net winnings from all winning sessions as income on Line 21 of Form 1040 (the amount should at least equal the total amount of winnings reported on any Forms W-2G you receive). The sum total of net losses from all losing sessions can be deducted on Line 28 of Schedule A, subject to the losses-cannot-exceed-winnings limitation. Presumably, the per-session approach of recording net wins and losses from each gambling session will also be considered adequate record keeping for other types of gambling for both amateur and professional gamblers. Poker players, take note!
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