Gambling and Taxes
Joe O'Connor, CPA
The U.S. Supreme Court recently struck down a federal anti-sports gambling law, which may result in states allowing sports betting. Your first reaction was probably, how does this impact my taxes? The recent ruling does not impact how gambling income is taxed. However, now that states may allow betting on sports you may be legally gambling more often. In addition, the new tax law enacted at the end of 2017 impacted the deduction for gambling losses. Therefore, now is a good time to take a look at how gambling is taxed for individuals.
As you can imagine, any income or prizes you receive from gambling are taxable. If you win a lottery scratch-off ticket, bet on a winning horse at the racetrack, or play blackjack at the casino one night and win, all are fully taxable. Gambling winnings should be reported as Other Income on your tax return. You most likely will not receive a tax form indicating the amount of your winnings. Therefore, it is important that you keep track of your income and maintain good records. There are certain circumstances you will be issued Form W-2G Certain Gambling Winnings. You will get a W-2G if you win a large amount while gambling or if any tax was withheld. This form is similar to a W-2, and shows the amount of your gambling winnings and tax withheld, if any. The IRS also receives a copy of your W-2G.
You can deduct gambling losses, but the deduction cannot be more than the gambling winnings included in your taxable income. So for example, if you win $300 at the casino one night, then the next night you lose $400, you can deduct $300. Under the new tax law, you can deduct certain expenses related to gambling such as admissions fees and travel to the casino or racetrack. The total of your expenses, after adding gambling losses, is also limited to the amount of gambling income. In order to take the deduction for gambling losses, it is very important to maintain good records, such as date of loss, wagering location, and type of wagering. Warning, do not pick up a bunch of losing tickets off the floor at the racetrack and try to deduct those as losses.
Gambling losses are deducted as itemized deductions. That means gambling losses will only be deductible if you add up your mortgage interest, state taxes, chartable contributions, gambling losses etc., and the total is greater than the standard deduction. The standard deduction for 2018 is $12,000 for individuals and $24,000 for married filing jointly.