Prepare for April Tax Day by Deducting Gambling Losses

With the tax deadline fast approaching, finalizing that return and getting the most money back is very important. In the United States both the professional and occasional gambler can deduct losses from income tax. Now, there are a few stipulations to understand, and these can change annually, but it is pretty straightforward each year. Claiming your winnings and deducting your gambling losses may help save money, but only if you played and lost enough.

What If I Won a Lot Over Last Year?
Congrats!! Watch this video. If not just skip it…

Well Then, What Can Be Deducted?

According to Bill Bischoff of CBS Market Watch (March 31, 2015), the most important rule to remember when preparing for taxes is it is only possible to deduct as much as what someone won during a given year. In order words, if someone won a total of $5,000 throughout the course of a single year, they are only allowed to deduct up to $5,000 in gambling loss claims. Even if someone lost a total of $10,000, they are not able to deduct more than what they won. This covers all kinds of gambling, ranging form playing the lottery to betting on horses, slots, poker, roulette or any other form of governed gambling (meaning it is not possible to claim or deduct any sort of friendly wagers made between friends or those made online at off-shore casinos). This kind of  limitation applies to both professional gamblers and amateurs.

Amateur Gambler Forms and Documentation

For an amateur, after determining what the losses that cannot exceed winnings limitations, the individual is able to locate the gambling claim option on line 28 of Schedule A, which is an itemized deduction form. If a person is not itemizing their deductions and is simply taking the standard deduction, they are not able to claim their gambling losses. Due to this, it is in someone’s favor to look over all of their deductions throughout the course of the year and see if it is more than what the standard deduction would be.

For the amateur gambler, only loses can be deducted. This means the cost of staying in a hotel, meals, transportation and anything else that takes someone to the location of gambling cannot be deducted. In addition to this, the only way someone is able to claim the deduction of their gambling losses is if the person claims the winnings as well. In order to claim the winnings, it goes on as miscellaneous on line 21 of the first page on Form 1040. This is where the gross winnings is located.

So, to fill out this line, take the total amount of winnings over the course of the year and subtract the losses . If the losses are greater than the winnings, a 0 goes here (unless there are other miscellaneous items the individual needs to fill into the document). The amount of losses, up to the amount won throughout the course of the year, is then inserted into line 28 of Schedule A, when itemizing the taxes.

The Professional Gambler Explained

For the person who makes their living off of gambling, there are a few additional perks for them that they can claim on their taxes. Now, this does not mean it is the full-time, 100 percent job. In fact, the very definition has been taken to court multiple times in order to iron out what the meaning of a “professional gambler” is. According to the IRS and the federal government, essentially anyone who has devoted a substantial amount of time into gambling and who gambles on a regular basis and who depends on gambling for a “meaningful” source of income. Meaningful does not mean all, or even over 50 percent. Basically, if it helps pay the bills from month to month, this is meaningful and, thus, means the person is a professional gambler. Now, the IRS is more likely to look a bit closer at someone who claims they are a professional gambler, so keeping records of this is helpful.

Now, for someone who does have the ability to claim they are a professional gambler, there are some nice deduction perks. First, they need to report their gross winnings as income on the first line of Schedule C of Form 1040 (this is the form for profit or loss from business document). They then need to report their total loses (again up to the amount they won throughout the year), plus all out of pocket gambling related expenses, such as transportation, out of town mean costs, out of town lodging and anything else related to the gambling process. This goes on as business expenses on Schedule C. Basically, if someone who fits the “professional gambler” title flies out to Las Vegas in order to take part in a poker tournament, or even just flies out in order to spend time gambling, the plane ticket, hotel and other transportation is all tax deductible. 50 percent of all meals consumed while on the road are deductible as well. It isn’t 100 percent because after all, the individual is going to eat no matter what, so the IRS does not award 100 percent.

A professional gambler is able to deduct all out of pocket expenses, regardless of how much they won over the course of the year. So, even though they are not able to deduct more actual gambling losses than what they won, if they paid $8,000 in total transportation, hotels and food but only won $5,000, they are still able to claim the full $8,000.

Claiming Professional Status

Now, for anyone who is considering claiming this status simply because they are able to also claim their transportation and hotel fees, they also need to keep in mind that when they file Schedule C, it means they also need to pay the self-employment tax. This tax can be a heavy hit and often add a considerable amount to the overall amount of money they need to pay. So, before this takes place, they really need to look over all of their books and make the educated decision as to which is better for them. In some cases, filing as a professional gambler might actually cost the person more than if they had filed as an amateur.

*(This is not tax advice, and should not be taken that way.)