Congratulations! You’re probably here because you won some type of prize, lottery, or game of chance. You’re also here because you now realize that Uncle Sam needs his share of your winnings.
Gambling winnings are reported on line 21 of the 1040 (other income). Many taxpayers incorrectly believe that they only have to report what is reported to the IRS via form W-2G. Actually, you need to include ALL income derived from gambling activities, not just what was reported to you on a form W-2G.
Different types of gambling income include:
- Slot Machines
- Table Games
- Lottery Tickets
- Prizes and Giveaways (such as a car)
Every dollar that is derived from those various activities needs to be reported. Luckily, as you will see in the next section, you can deduct gambling losses up to your winnings on your itemized deductions.
As we mentioned before, gambling winnings are included in your income. Thankfully, if you have gambling losses, you can use them to offset some of your winnings. These losses are reported on line 28 of Schedule A (itemized deductions).
So basically, you can deduct your losing scratch-off lottery tickets, money that you lost at the slot machines, etc. Also, keep in mind that you can only deduct losses up to the amount of your winnings. For example, let’s say you had $60,000 in gambling winnings and $70,000 in losses. You can only claim $60,000 in losses on your Schedule A. As you will see in the next section, in order to claim these losses, you need to keep impeccable records.
The tax law states that you must keep records (a diary) of all your winnings and losses due to gambling activity. The winnings and losses need to be listed separately and you cannot just have a letter from a casino showing your net profit or loss.
Your gambling diary should include all of the following:
- The date and type of your specific wager or wagering activity
- The name and address or location of the gaming establishment
- The names of other persons present with you
- The amount you won or lost
Yep, you read that right. You need to document all of that. It’s best to get into the habit of documenting each win and loss while gambling, right down to the last scratch-off ticket!